2024-07-25 02:38:21 ET
Summary
- Carvana's stock has shown a 152% year-to-date gain in 2024, making it one of the best-performing stocks.
- The company successfully transformed from a loss-making entity to a profitable leader in the used car market, despite post-pandemic challenges.
- Carvana's acquisition of ADESA in 2022, initially seen as risky, has proven beneficial for operational efficiency and cost reduction, with SG&A decreasing by 1000 basis points since 2016.
- The company leads the industry in inventory turnover (2.14x in Q1 2024) and gross margin (19.3%), outperforming competitors like CarMax and AutoNation.
- The company currently holds a 1% market share in the fragmented used car sector, with potential to reach 5% in the next decade (15.6% CAGR).
Introduction
With a 152% year-to-date gain, Carvana's ( CVNA ) stock is among the best-performing in 2024. Although it faced difficulties after the pandemic, it managed to survive through the challenging economic times. It now takes the lead in the used automobile market and has a lot of potential to capitalize on the enormous market for old cars. The growth story, in my opinion, is only getting started because Carvana has distinguished itself from its peers and still has a lot of room to grow.
Turnaround Story
Carvana was founded in 2012. Before the COVID-19 pandemic, it was seen as a market disruptor in the used car industry because consumers preferred its ease of use. Before the pandemic, Carvana operated at a loss. During the pandemic, the company prospered because of the at-home economy, and it reduced its loss to about 100 million (see exhibit below). However, rising inflation later caused used car prices to rise sharply, and the Fed's high-rate policy completely restricted the expansion of the used car industry....
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Carvana: A Promising Investment In The Used Car Market