Carvana Co (CVNA, Financial) experienced a notable daily gain of 12.39%, despite a three-month loss of 30.78%. With a Loss Per Share of $6.07, investors are faced with the question: Is the stock modestly overvalued? This article delves into the valuation analysis of Carvana Co, providing insights into whether the current market price reflects the company's intrinsic value.
Company Introduction
Carvana Co is a revolutionary e-commerce platform revolutionizing the used car industry. The company generates revenue through various streams, including used vehicle sales, wholesale vehicle transactions, and other related services. The core of Carvana Co's business is retail vehicle unit sales, which not only drives the majority of their revenue but also enables them to capitalize on additional revenue streams such as financing, vehicle service contracts (VSCs), auto insurance, GAP waiver coverage, and trade-ins. With a current stock price of $35.2 and a Fair Value (GF Value) estimated at $29.19, we explore the alignment between Carvana Co's market cap of $4 billion and its intrinsic valuation.
Summarize GF Value
The GF Value is a unique measure that evaluates the intrinsic value of a stock, taking into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, as well as future business performance estimates. Carvana Co (CVNA, Financial) is currently considered modestly overvalued according to this valuation model. When a stock trades significantly above the GF Value Line, it suggests an overvaluation that could lead to poor future returns. Conversely, trading below the GF Value Line may indicate undervaluation and the potential for higher future returns. With Carvana Co's shares priced at $35.2, the company's market capitalization stands at $4 billion, indicating a modest overvaluation.
Given Carvana Co's relative overvaluation, the long-term return of its stock is likely to be less than its business growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of permanent capital loss. A thorough examination of Carvana Co's financial health, starting with the cash-to-debt ratio, reveals that with a ratio of 0.09, Carvana Co's financial strength is weaker than 87.54% of its peers in the Vehicles & Parts industry. GuruFocus assigns a financial strength rating of 3 out of 10, highlighting the company's financial weaknesses.
Profitability and Growth
Investing in profitable companies like Carvana Co, which have demonstrated consistent profitability over time, generally carries less risk. Carvana Co, however, has had a challenging profitability track record, with no profitable years in the past decade. The past year's revenue was $11.20 billion, but the company reported a Loss Per Share of $6.07 and an operating margin of -4.24%, which is below 86.52% of its industry counterparts. GuruFocus rates Carvana Co's profitability as weak.
Regarding growth, it is a pivotal factor in valuation. Carvana Co's 3-year average annual revenue growth rate is 17.1%, outperforming 78.86% of the industry. However, its 3-year average EBITDA growth rate is -60.1%, which is lower than 97.15% of the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can shed light on its profitability. Carvana Co's ROIC over the past 12 months was -6.72, falling short of its WACC of 12.95, indicating that the company is not generating sufficient cash flow relative to its capital investments.
Conclusion
In conclusion, Carvana Co (CVNA, Financial) appears to be modestly overvalued. The company faces financial challenges and displays poor profitability. Its growth ranks unfavorably compared to most companies in the Vehicles & Parts industry. To gain a deeper understanding of Carvana Co's financial situation, investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
