VRM - Bill Gates Is Betting Big on Carvana (CVNA) Stock. Here's Why.
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Carvana (NYSE:CVNA) stock is in full focus today after the Bill & Melinda Gates Foundation Trust reported purchasing 520,000 shares during the second quarter. The trust has more than $17 billion in 13F assets under management (AUM) and holds 20 positions in total. It also operates with a long-term mindset and has an average holding period of 32.8 quarters, or just over eight years.
Carvana reported its Q2 earnings on Aug. 4. For the period, retail units sold totaled 117,564, up 9% year-over-year (YOY). In addition, revenue tallied in at $3.88 billion, climbing 16% YOY. Gross profit per unit came in at $3,368 in Q2 as well, down from $5,120 a year ago. In Q2 2022, the company drifted back into unprofitability, posting a net loss of $439 million versus a net profit of $45 million in Q2 2021.
During the quarter, Gates also purchased 2.5 million shares of Vroom (NASDAQ:VRM), a Carvana competitor. After the purchases, CVNA stock is the fund’s 18th largest position. VRM stock comes in last place at 20.
Let’s get into the details.
Bill Gates Buys CVNA Stock
Shares of this e-commerce car company have had a rough year so far. CVNA stock has declined by more than 80% YOY as its benefits from the pandemic have worn off. Meanwhile, the Manheim Used Vehicle Value Index — which measures the prices of used cars — is up 12.5% YOY. With higher prices and higher interest rates, potential buyers may be scared out of the markets.
Higher interest rates also hamper Carvana’s loan business. The company repackages car loans and sells them to investors like pension and insurance funds in a process called securitization, according to The Wall Street Journal. Carvana receives an upfront premium while the buyer receives potential future cash flow from interest payments, taking on the risk of late payments or default.
Gates’ recent purchase may signify that the worst is already priced into CVNA stock. Meanwhile, insiders of the company seem to think the same as well. CEO Ernest Garcia III has purchased 2 million shares this year at an average price of $80. The shares were purchased through a public offering. His father and 10% owner, Ernest Garcia II, has also purchased 7.08 million shares year-to-date (YTD). That said, readers should note that some of Garcia II and Garcia III’s purchases overlap because they were both purchased through the same trust.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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