JPMorgan Chase was the latest firm to slash estimates on Carvana ( NYSE: CVNA ) with a price target cut doled out on Tuesday to $10 from $20. Analyst Rajat Gupta and team pointed to Carvana's weak volume, high debt, and direction of the fundamentals in turning more cautious.
Carvana's ( CVNA ) business model is seen as being more scalable now, with room for continued share gains in the highly fragmented used market. However, rising interest rates and continued labor/capacity constraints, as well as a recent pause in investments to manage profitability are all seen as indications that volume growth is likely to slow.
"Net-net, chance of survivability is not a reason to engage in shares currently, and we believe CVNA is far from out of the woods, as even when the industry bottoms out, we don’t see a V-shaped recovery in the industry, particularly given challenging supply dynamics in the medium term for 1-5-year-old cars and negative equity risk, along with CVNA’s increasing debt burden."
For investors, short interest on CVNA stands at 40% of total float, which means outsized swings are still very likely.
Meanwhile, the devastating 98% year-to-date decline in Carvana has pushed the Seeking Alpha valuation grade to A, but low marks for profitability and momentum have kept the Quant Rating locked in at Sell.
Shares of CVNA rose 1.08% in premarket action on Tuesday to $7.48.
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Carvana stock is not for the faint of heart - JPMorgan