Carvana stock continues to sharply divide analysts as the online used-car seller seeks growth and profits while looking to reduce a heavy debt load.
Valuations for Carvana have once again "disconnected materially from fundamentals," JPMorgan analysts warned Thursday.
That bearish take came just a day after JMP Securities doubled its price target on CVNA stock. The firm cited operational improvements at the company while the used-car industry continues to stabilize.
Bearish View on Carvana Stock
At current valuations, Carvana is "baking in a stronger than anticipated return to growth," JPMorgan analyst Rajat Gupta said in a note to clients. But Gupta has "little conviction today" for such a view given lingering supply challenges in the used-car industry, affordability issues for consumers, and risk of moderating gross profit per unit (GPU) for the company.
The JPMorgan analyst downgraded Carvana stock to underweight from neutral and dropped the price target to 10. That represents more than 70% downside from the current share price.
Bullish View On Online Used-Car Seller
Carvana disrupted the car industry with a sleek platform for selling used vehicles online. But it remains a loss-making company with a challenging debt load. FactSet analysts project a loss of $5.61 per share this year, after a $15.74 loss for 2022. Still, losses are expected to narrow over the next two years.
On Wednesday, JMP Securities analyst Nicholas Jones said he sees Carvana "heading in the right direction" on the progress toward profitability and positive free cash flow. He also said soaring Carvana shares could make it easier for the company to raise capital "while avoiding a significant dilutive event, which, in turn, should reduce the risk of bankruptcy."
The analyst doubled his price target on CVNA stock to $50 from $25, citing multiple expansion — precisely the technical factor that contributed to the JPMorgan downgrade.
Carvana Stock
Shares of Carvana dived 11% in Thursday morning stock market action. But CVNA stock pared losses, closing down 3.1% to 37.67.
Carvana stock notched a 52-week high on Wednesday and is up nearly 28% for the week and up 695% year-to-date. CarMax shed 0.95% Thursday and has rallied 37% year-to-date.
Used-Car Industry Trends
While JMP Securities sees Carvana on a positive trajectory, hurdles remain.
The firm said Wednesday that the used-car industry's "upper funnel trends" — the processes that turn customer leads into actual sales — are showing signs of normalizing, though volumes remain below pre-pandemic levels.
"CVNA's website traffic remains the most pressured," declining 37% year over year in the second quarter but improving 10% quarter over quarter, Jones said.
The analyst tied that to the company's decision to reduce ad spending to prioritize profitability.
