Wall Street was basically on track regarding Carvana Co.’s fourth-quarter results, which missed bottom- and top-line expectations, but the stock’s big rally reflects how stunned many were about record GPUs and the upbeat outlook.
The stock
CVNA,
soared 39% in morning trading Friday, which puts it on track for the highest close since April 25, 2022. It was also headed for the biggest one-day gain since it soared 40.2% on July 19, 2023.
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The rally comes even after the online seller of used cars reported a wider-than-expected fourth-quarter loss on revenue that fell below forecasts.
But the company reported record gross profit per unit (GPU) of $5,511 for the year, up 82.4% from $3,022 in 2022 and projected one measure of profitability to top $100 million in the first quarter, which compared with a FactSet consensus at the end of January of under $80 million.
That outlook for adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) caused Raymond James analyst Mark Ingles to upgrade Carvana’s stock to market perform, just one week after downgrading it to underperform.
Ingles said last week’s downgrade was based on his belief that Wall Street’s view of adjusted Ebitda seemed “reasonable.” And while he saw some potential positives, he believed those were already priced into the stock.
The stock had lost 1% year to date through Thursday, but that was after it skyrocketed 1,017% in 2023.
He wasn’t the only analyst who was surprised.
After the results, of the 23 analysts surveyed by FactSet who cover Carvana, only two were bullish, while 16 were neutral and five were bearish.
No less than eight analysts raised their stock price targets after the results. The new average stock price target of $46.44 implied 36% downside from current prices.
But wasn’t just just the sell-side analysts that were surprised. Short interest, or the number of shares used to bet on price declines, represented 35.6% of the public float, or shares available for public trading. (Read more about the mechanics behind a short sale.)
That compares with the short interest as a percent of float for the original “meme” stocks of GameStop Corp.
GME,
of 22.4% and of AMC Entertainment Holdings Inc.
AMC,
of 10.9%.
D.A. Davidson’s Michael Baker, who rates Carvana’s stock at neutral, said “we don’t yet see signs that [Carvana] is ready to turn back on the growth spigots,” particularly given a “sluggish” industry.
“But the impressive improvement in cost structure and unit economics continues, which should enable leverage and industry leading margins once top line trends resume,” Baker wrote in a note to clients. “This idea, along with still elevated short interest, are leading to a significant pop in shares.”