Carvana Co (CVNA, Financial) recently saw a notable daily gain of 14.1%, yet over the past three months, it has experienced a loss of 8.45%. With a significant Loss Per Share of 6.07, investors are faced with the critical question: is Carvana Co significantly overvalued? This article delves into the valuation analysis of Carvana Co, providing insights into whether the current stock price reflects the company's true value.
Company Introduction
Carvana Co is an innovative force in the e-commerce space, focusing on the buying and selling of used cars. The company's revenue streams are diverse, encompassing used vehicle sales, wholesale vehicle sales, and other related services. These ancillary services include loan origination and sales, vehicle service contracts (VSCs), auto insurance, and GAP waiver coverage. The core of Carvana Co's business lies in retail vehicle unit sales, which not only generate the majority of its revenue but also enable the company to leverage additional revenue streams. A pivotal aspect of understanding Carvana Co's position in the market is comparing its current stock price of $45.07 to the GF Value, which estimates its fair value at $27.25.
Summarize GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock. This value is calculated by considering historical trading multiples, an adjustment factor based on the company's past performance, and estimates of future business performance. The GF Value Line serves as a benchmark, suggesting a fair trading value for the stock. When a stock's price significantly exceeds this line, it is typically considered overvalued, indicating the potential for poor future returns. Conversely, a price well below the GF Value Line may signal higher future returns.
At a market cap of $5.10 billion, Carvana Co's stock price of $45.07 suggests that it is significantly overvalued according to the GF Value. This assessment implies that Carvana Co's long-term stock return could be much lower than its future business growth.
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Financial Strength
Assessing a company's financial strength is crucial in avoiding permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insight into a company's financial resilience. Carvana Co's cash-to-debt ratio stands at 0.09, ranking lower than 87.68% of its peers in the Vehicles & Parts industry. With an overall financial strength rating of 3 out of 10, Carvana Co's financial position is considered weak. This assessment is crucial for investors considering the potential risks associated with the company's stock.
Profitability and Growth
Profitability is a vital aspect of a company's long-term viability and attractiveness to investors. Carvana Co, however, has struggled in this area, with a operating margin of -4.24%, placing it in a weaker position than 86.18% of its industry counterparts. Despite achieving a revenue of $11.20 billion over the past twelve months, its profitability rank is a mere 3 out of 10.
When it comes to growth, Carvana Co has shown promise with an average annual revenue increase of 17.1%, outperforming 78.86% of its industry. However, its 3-year average EBITDA growth rate of -60.1% is concerning, ranking lower than 97.23% of similar companies.
ROIC vs WACC
An effective way to measure a company's profitability is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Ideally, a company's ROIC should exceed its WACC to indicate value creation for shareholders. Carvana Co's ROIC over the past 12 months was -6.72, significantly lower than its WACC of 13.56, suggesting that the company is not generating sufficient cash flow relative to the capital invested.
Conclusion
In summary, Carvana Co (CVNA, Financial) appears to be significantly overvalued. The company's financial condition and profitability are concerning, and its growth prospects are less promising compared to many of its industry peers. For those interested in exploring Carvana Co's financials in greater detail, you can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
