After an 800% surge over the past 12 months, is now the time to buy Carvana stock?

To say so caravana (CVNA 9.26%) If shareholders have been through a rough patch, they can take it lightly. The online used car retailer has seen its stock price soar in its first four years since entering the public markets in 2017, reaching a market capitalization of $31 billion in August 2021. However, macroeconomic headwinds starting in 2022 crushed the business, and the auto industry retail inventory crater. From 2022 to 2023, the stock price fell 77%,

But there is new hope. Carvana stock soared 800% from February 27, 2023 to February 27, 2024, driven by positive financial results.

Is now the time to buy stocks?

Looking at the latest figures

On February 22, Carvana reported revenue and volume of $2.4 billion (down 15% year-over-year) and $76,000 (down 13%) in revenue and volume for the final three months of 2023. Both figures beat Wall Street estimates. And the company’s size has now declined for two years in a row.

But Carvana impressed shareholders in another important area. The business has continued to focus on cost reduction, with annual selling, general and administrative expenses down 34% in 2023. “Right-sizing” operations was a focus of management.

Efficiency has helped Carvana achieve its financial goals. You posted a positive post. net profit $150 million in 2023 will give optimistic investors plenty to cheer about. This was after the company reported a net loss of $2.9 billion in 2022.

Looking ahead, management expects retail sales volumes to be higher in the first quarter and overall 2024 compared to the same period last year. Investors were excited.

Looking at the huge market

Carvana’s goal to completely transform the way people buy and sell cars has not changed. Despite the rocky financial results of the past few years, the market the company can address remains huge. Last year, 36 million used cars were sold in the United States. The industry is also extremely fragmented.

Businesses that can improve their user experience can win over customers. Carvana stands out in this regard, focusing on providing shoppers with a fast, convenient, and transparent way to buy and sell cars.

At the same time, the company has historically invested aggressively to expand its logistics footprint, which doesn’t come cheaply, especially when trying to create a vertically integrated organization. But with an understanding of the extended runway, the leadership team wants to develop scale advantages that justify significant capital expenditures.

It’s worth noting that at the end of 2023, Carvana was sold in 316 markets nationwide. This is exactly the same number as it was 12 months ago. So the leadership team halted its growth plans entirely to get the company’s financials into a better position. Of course, this is not a strategy that will make sense for the business in the long run, as shareholders will start demanding that progress be made towards expansion.

It will be important for investors to pay close attention to how management strikes the right balance between growth and profitability in the coming years.

High risk, high reward

As of this writing, Carvana stock is 78% below its all-time high from about two and a half years ago. They are traded for one price price to sales ratio At 1.2, it is slightly higher than the past average. This is after the stock price rebounded.

However, Carvana still remains a very high-risk investment opportunity, so don’t rush to grab the stock just yet.

Fortunately, the company is making notable progress in controlling costs, but growth has completely stalled. This indicates how sensitive Carvana is to macro factors. The long-term debt burden, currently at $5.5 billion, doesn’t help the situation either. Investors should always be concerned about which direction the economy is heading. When a recession hits, the company naturally faces difficulties.

This stock has significant upside, but the downside is too difficult to ignore. So I am not a buyer today.