Why Carvana Shares Crashed in the Past 2 Trading Days

Carvana stock (CVNA) is still being run over.

Shares of the online car dealership fell 50% in the past two full trading sessions and fell another 18% in early trading Monday as Wall Street questioned the company’s business model after a mixed third quarter.

Carvana swung to an adjusted operating loss of $186 million, compared to a profit of $9 million a year ago. Execs told analysts during a conference call that they were preparing for a “difficult” year ahead, which hurt market sentiment around the stock.

Carvana’s ticker page was one of the most active on the Yahoo Finance platform on Monday.

Carvana’s two-day decline was set in motion by influential Morgan Stanley auto analyst Adam Jonas.

On Friday, Jonas released a note suggesting that Carvana shares could fall as low as $1. Jonas’s appeal is supported by declining demand for used cars and rising borrowing costs, both of which could hurt Carvana’s already less-than-solid financial statements.

The difficult financing environment alone “adds material risk to the outlook” for Carvana, Jonas said.

NUMBER PLATE PIXELATED BY PA PICTURE DESK A car crushed by fallen bricks in Seaton Sluis, Northumberland after high winds from Storm Malik ravaged northern parts of the UK.  Photo date: Sunday, January 30, 2022. (Photo by Owen Humphreys/PA Images via Getty Images)

A car crushed by fallen bricks in Seaton Sluis, Northumberland, after high winds from Storm Malik ravaged northern parts of the UK on Sunday 30 January 2022. (Photo by Owen Humphreys/PA Images via Getty Images)

Other analysts on the street shared Jonas’s concerns.

“Carvana is taking action to overcome a challenging demand landscape that we believe is likely to linger until 2H23 (or longer),” Evercore ISI analyst Michael Montani wrote in a note to customers.

The analyst added that if Carvana fails to turn positive EBITDA in the second half of next year, it could lead to asset divestments, sale-leasebacks, delays in acquiring Adesa’s auction business and the need in additional capital, including by the founder. The family of Ernest Garcia III.

Montani calculated that Carvana has $4.4 billion in liquidity to come out a “jerky” 6-9 months.

Brian Sozzi is a great editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.

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