Carvana Co. (NYSE: CVNA) is an online marketplace for buying and selling used vehicles in the United States. Customers can use their desktop or mobile devices to browse and find vehicles, check them using the company's 360-degree car image technology, get finance and warranty coverage, buy the vehicles, and arrange delivery or pick-up.
In recent months, Carvana stocks have received a lot of distressing news, which has resulted in a decline in the stock's value. If you're wondering if you should hold on to Carvana stocks, this article will highlight three critical reasons why you should dump Carvana stock.
BANKRUPTCY FEAR
Carvana Co. (NYSE: CVNA) shares have dropped almost 66% since the beginning of the week due to concerns that the company may be in financial jeopardy. So steep was the drop that the stock's downward movement was temporarily halted for a while just to attain stability because the shorts were taking over. I guess I should have made a call to go short on this stock.
The reason for this drop is not farfetched; Carvana's chances of declaring bankruptcy are increasing. Their balance sheet shows that Carvana has taken out loans regularly to fund its losses and expansion goals. One doesn't need a financial prophet to say that this company will likely run out of cash by the end of 2023, and there is no hint yet of a potential financial inflow.
ANALYST DOWNGRADE
In pre-open trading on Wednesday, shares of Carvana Co. (CVNA) dropped 30% after Wedbush analysts downgraded the stock to Underperform, because of bankruptcy fears.
Nat Schindler, a Bank of America Securities analyst, downgraded the stock to neutral from buy and reduced his price target to $10 from $43. As a result, the stock dropped by up to 7.5% on Friday. Schindler's rating and remarks are another analyst downgrade. These are the most recent setback for Carvana's stock, which has recently had several analyst downgrades. His downgrading of the stock comes shortly after Moody's last week downgraded Carvana's debt rating to negative.
Over the course of weeks, they've been numerous downgrades on this stock. This has tremendously affected the stock price of this online market car dealing company.
MISERABLE Q3 2022 EARNINGS REPORT
Current reports suggest that the used car price decline has worsened the company's precarious financial situation. This has led the online vehicle vendor to report yet another terrible quarter. Even though shares that once traded for $370 are now only trading for less than $13, there still appears to be the possibility of further fall soon.
Here's how Carvana performed, Loss per share: $2.67 and Revenue: $3.39 billion
Carvana saw a decline in all marketing sectors of its business compared to YOY. Notably, a 31 per cent loss in gross profit is huge, in my opinion, for a company like Carvana and a reduction in car fleets to 102,570 automobiles. Its retail unit sales fell 8% from the third quarter of 2021, while gross profit per unit a key indicator often followed by investors—fell by more than $1,100 to $3,500.
These results are likely to get worse.
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