CVNA - Carvana: Better Margins Better Stock
2024-06-26 09:01:23 ET
Summary
- Carvana faced challenges with inventory supply, shrinking margins, and disruptions in the automotive supply chain, exacerbated by a global semiconductor shortage.
- Aggressive pricing strategy led to severe margin pressures and substantial financial losses, with a shift in consumer behavior post-pandemic impacting sales.
- Despite challenges, Carvana improved operational efficiency, reduced inventory, and achieved record operating profits in 2023, with favorable EPS growth projections for 2024.
- I am more optimistic about the stock, but not ready to turn bullish yet. The company needs to continue to address their debt load.
Investment Thesis
Over the past three years, Carvana ( CVNA ) had to contend with inventory supply issues, shrinking margins, and disruptions within the automotive supply chain. These problems were compounded by broader market conditions, including a global semiconductor shortage, which curtailed new car production and inflated used car prices??????. The strain on inventory was particularly damaging, given Carvana's reliance on high-volume sales cycles and rapid turnover to sustain cash flow and profitability.
Earnings reports indicated that margin pressures have been severe. Carvana employed a strategy of undercutting traditional dealership prices that became popular with consumers, but has not yielded sustainable financial results. The aggressive search for a majority of market share, instead eroded profit margins as operational costs outpaced revenue growth????. This was starkly visible in the substantial losses reported over a particularly bad 3-quarter period from 2021-2022, totaling $381 million?? ....
Carvana: Better Margins, Better Stock