Carvana shares are in the midst of a roaring rally this year, but Jefferies thinks Wall Street isn't properly considering risks facing the used-car retailer.
Shares of Carvana Cos. are in the midst of a roaring rally this year, but one analyst thinks Wall Street isn’t appropriately considering risks facing the used-car retailer.
In... Shares of Carvana Cos. are in the midst of a roaring rally this year, but one analyst thinks Wall Street isn’t appropriately considering risks facing the used-car retailer. In Colantuoni’s view, Carvana’s momentum on retail and other gross profit per unit , closely watched metrics, benefited from “transitory tailwinds like wider wholesale/retail spreads and the timing of loan sales” that aren’t liking to continue at current rates. Further, he expects “an acceleration in unit growth next year leading to inefficiencies that further negatively impact per unit economics.
Shares of Carvana were off more than 1% in premarket trading Monday, though they’ve surged more than 800% so far this year.While Wall Street was encouraged by a recent debt deal that Carvana disclosed, he sees some risk in the actions the company is taking around its capital structure. An ongoing at-the-market equity offering, for one, “gives [Carvana] the option to raise up to [$1.5 billion], which poses near-term risk of additional dilution beyond the $225M already issued,” Colantuoni said.
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