Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
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Hey Traders,
This week we are looking past the banks and tech and digging into a high momentum stock: Carvana (Ticker: CVNA).
Some doubt that this company can continue as a going concern…there are also those that think they will come out of this high interest rate environment and end up owning the used car market…
So what is the truth?
Can CVNA make it through the next few years and corner the used car market?
Let’s take a deep dive…
The Good
On the financial side there isn’t a ton of good news…. but that doesn’t mean there isn’t any!
And some of the well loved stats don’t tell the whole story.
Let’s start with the cash: at quarter end, CVNA actually had 9.36 of cash per share available.
That’s almost dollar for dollar the price of the stock.
That means that despite some of the doomsday discussion, this stock is not going anywhere in the next few months.
The company has decent revenues of 13.60 billion dollars.
While it certainly has a large amount of debt, this is not unsecured debt.
Almost all of its debt is asset backed, meaning there is a car to match the dollars they’re borrowing.
There is also a coolness factor: if you have driven by one of their vending machines, you kinda want to get a car out of there.
While the stock is down over the last 6 months, it’s well off the lows we saw in December and early January.
While a stock price is never a certainty of outcomes, clearly the market believes the odds of success here have increased.
The last earnings were not great, but did not see the stock plummet to new lows…
The Bad
The fundamentals.
Outside of cash per share, there’s not a lot to be excited about..
CVNA saw negative cash flows of 25.88 over the last year.
EPS? A negative 15.52 dollars a share.
Despite that huge revenue number the company lost 1.59 billion dollars in the last year.
The fundamentals here are frankly … awful.
Coolness is a great thing, but it doesn’t always fill one’s pockets. That might be the case when it comes to CVNA.
So what is the verdict?
If rates recede, CVNA has a legitimate shot to continue as a going concern. If they don’t … this stock is doomed.
Big Money seems to be thinking the latter is the case.
Check out the huge options orders just this week.
Monday:
Tuesday
Based on the fundamentals and the huge order flow betting against this stock, we may see a new low soon.
I would be straight up short.
Questions about that? Leave a comment below!
Your Only Option,
Mark Sebastian