On Friday, investment firm William Blair revised its rating on Carvana Co. (NYSE:CVNA), lifting the online used car retailer from Market Perform to Outperform. The upgrade comes after Carvana reported a robust fourth quarter, with profits surpassing the firm's and consensus expectations, despite a lower volume of loan sales than anticipated for the period.
Carvana experienced a significant turnaround, with its adjusted EBITDA moving from a loss of over $1 billion in 2022 to a profit of $339 million. This shift was supported by a substantial increase in non-GAAP GPU, which rose by approximately $2,650 to nearly $6,000. The company has demonstrated a scalable and profitable business model, which has led to expectations of modest year-over-year growth in retail units sold in the first quarter. The projected adjusted EBITDA for this period is anticipated to be significantly above $100 million, outpacing the estimated $94 million and the consensus of $70 million.
In light of these developments, William Blair has adjusted its projection for Carvana's 2024 adjusted EBITDA upwards by more than $200 million, setting the new target at over $550 million. This adjustment signifies a growth expectation of over 65%. The firm also anticipates a roughly 40% increase in adjusted EBITDA for 2025, even as it expects Carvana to reinvest for further growth.
The positive outlook is based on the potential for healthy profit growth and accelerating revenue growth, which could lead to substantial stock appreciation. The stock is currently valued at 7.1 times EV/2025 gross profit in aftermarket valuation. Despite the upgrade, the firm acknowledges risks such as Carvana's historical profitability challenges, the management of depreciating assets, potential declines in finance income per car in an unfavorable credit environment, and the economic sensitivity of selling high-ticket discretionary items.
InvestingPro Insights
Following the optimistic assessment by investment firm William Blair, Carvana Co. (NYSE:CVNA) has shown a mixed financial landscape according to InvestingPro data. While the company's market capitalization stands at $10.54 billion, suggesting a robust size, the financial metrics reflect some challenges. The Price to Earnings (P/E) ratio is currently negative at -23.24, indicating that investors are paying a premium for a company that isn't currently profitable. This is further emphasized by a Price to Book (P/B) ratio of 31.12, which is considerably high, pointing to a stock that may be overvalued relative to the company's book value.
Carvana's revenue has experienced a decline over the last twelve months, with a -22.98% change, aligning with analysts' expectations of a sales decline in the current year. This downturn in revenue growth may be a concern for investors looking for companies with consistent top-line growth. However, Carvana has demonstrated strong returns, with a remarkable 419.94% one-year price total return, reflecting significant investor optimism and potential market reassessment of the company's future prospects.
InvestingPro Tips highlight the company's high shareholder yield and note its stock's tendency to trade with high price volatility. For investors considering Carvana, these insights could be pivotal in understanding the potential risks and rewards associated with the stock. The company's liquid assets exceeding short-term obligations suggest a stable financial position in the near term, which may reassure investors concerned about the company's ability to meet its immediate liabilities.
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