VRM - Carvana: A Compelling Narrative With One Major Issue

• Carvana is a disruptive e-commerce company that is leading the modernization of the highly fragmented used-car market ($840 billion).
• Carvana's focus on enriching the customer experience in the used-car buying and selling process has received tremendous praise from consumers, which is evidenced by the company's explosive growth.
• In 2019, Carvana sold ~177K vehicles. This figure is merely a fraction of the 40 million used-cars sold in the United States. Hence, Carvana has a long growth runway.
• According to my estimates, Carvana has an intrinsic value of ~$92, i.e., it is currently overvalued. Moreover, the total expected returns of ~9% are below my investment hurdle rate.
• I rate Carvana neutral at $165.

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