CVNA - Carvana: The Squeeze Is Over (Rating Downgrade)
2024-05-02 12:51:59 ET
Summary
- Carvana Co. stock has risen over 140% since our last article, with a significant positive move on May 2nd.
- Short interest in the company has been declining rapidly, indicating a potential short-seller capitulation.
- Carvana 2024 Q1 results show an increase in gross profit and positive net income margin, but a closer look reveals a one-time accounting gain and high debt overhang.
- Further stock gains will be driven by robust ongoing profitability rather than the company's ability to exist as an ongoing entity.
- The company still has a high debt load and needs to prove it can be consistently profitable.
Thesis
Last summer we wrote an article regarding Carvana Co. ( CVNA ) entitled " Carvana: The Bankruptcy That Wasn't ," in which we argued that the most recent balance sheet restructuring undertaken by the company bought the name a significant amount of time to fix its operational margins, and ultimately short sellers betting on an imminent bankruptcy would be burnt. The stock is up more than 30% on May 2nd as we are writing this article, thus bringing the total return for the name since our rating to above +140%:
Original Rating (Seeking Alpha)