1 Unstoppable 2,600% Inventory Growth Since Early 2023: When to Buy?

Investors appear to be optimistic these days, as evidenced by the stock market nearing record territory. This optimistic sentiment has had surprising effects on some companies. Representative examples include: Target (CVNA).

The online used car seller has enjoyed impressive growth, surging more than 2,600% since the beginning of last year. This year alone, it rose 121%. Is today the time to take advantage and buy Carvana stock?

strong demand

One of the key factors that propelled Carvana stock to new heights has been a series of strong financial results. The company just reported its first quarter results.

Sales rose 17% year-over-year to $3.1 billion, beating Wall Street estimates thanks to a 16% increase in retail unit sales. These numbers are certainly encouraging, but it’s important to remember that Carvana had a really difficult quarter a year ago, so it’s easy to make comparisons right now.

Nonetheless, there is reason for optimism. Management expects sales to increase sequentially in the second quarter as well. They cited strong customer demand as a contributing factor to Carvana’s market share gains.

Zooming out, you can see just how big Carvana’s long-term opportunity is. Despite the company’s tremendous growth over the past decade, executives say the business accounts for only 1% of overall industry sales. In theory, Carvana’s focus on providing a better customer experience should lead to steady growth going forward.

financial adjustment

Carvana stock was helped by the company’s improving financial condition. A few years ago there were some serious concerns that the project was heading towards the inevitable. towards bankruptcy. But the leadership team Debt was restructured. A July 2023 launch should help alleviate these concerns for the time being.

In addition to solid demand trends, Carvana has started reporting positive earnings, something the bears are confident will never happen. Last year, the business had net income of $150 million, and in the most recent quarter it had $49 million.

For what it’s worth, the company posted adjusted earnings before interest, taxes, depreciation, and amortization (Evita) reached a record high of $235 million in the first quarter. Management focused on increasing operational efficiency. Sales increased every year, but selling, general and administrative expenses decreased, helping to improve profitability.

However, there are some caveats that investors cannot ignore. First of all, last year’s net income benefited from debt reduction of $878 million. Without this, the business would have been at a loss. And last quarter, Carvana benefited from a fair value adjustment. warrant Owned by a car insurance company root. Again, without these profits, the business would have recorded a net loss.

Still a risky business

There’s no denying that Carvana’s business is in much better shape today than it was this time last year. The leadership team is committed to prioritizing efforts to improve profitability while recording healthy growth. Investors clearly approve of this revamped strategy.

However, Carvana stock is still very risky. The lack of sustained profits from its core operations is concerning. plus, that Debt hasn’t gone away With the current balance 6 billion dollars. In the first quarter, the company paid out more in interest than it earned in operating income, which is a troubling sign.

As of this writing, the stock is trading at a price-to-sales multiple of 2x, well above its historical average of 1.1x. While it may be tempting to jump on the Carvana bandwagon, investors should avoid buying the stock right now.