Here’s Why Carvana Investors Should Take a Cautious Approach

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Despite a blistering performance for CVNA stock, it’s critical to look under the hood

Embattled online auto dealership Carvana (NYSE:CVNA) appears at first glance to have substantively turned a corner. On Thursday, management released better-than-expected guidance for the current second quarter of 2023. As a result, CVNA stock skyrocketed, surging more than 56%.

So far this year, shares have popped over 423%, delighting intrepid speculators. Nevertheless, prospective investors should check under the hood before signing on the dotted line.


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To be sure, Tempe, Arizona-based Carvana’s latest financial disclosure tempts at least further consideration. In its initiative to accelerate profitability, management now anticipates achieving adjusted EBITDA above $50 million in Q2. Just as importantly, non-GAAP total gross profit per unit (GPU) may top $6,000, representing a new company record. As well, such a tally would print a 63%-plus improvement compared to the year-ago quarter.

“Our record-breaking 2023 first quarter is evidence that our strategy is working and our updated Q2 2023 outlook demonstrates that our progress continues to positively impact the business even faster than expected,” remarked Ernie Garcia, Carvana’s founder and CEO. “The team’s persistent focus on driving profitability has resulted in significant savings and efficiencies, and this work will persist as we continue to execute our plan.”

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Cue Unusual Options

Predictably, CVNA stock was a key highlight on Fintel’s screener for unusual stock options volume. Following the close of June 8 session, call volume hit 517,986 contracts against an open interest reading of 300,086. On average, call volume reaches 86,908 contracts.

On the other side of the equation, put volume pinged at 263,970 contracts against open interest of 256,225. Usually, put volume averages at 39,484 contracts.

Despite the generally bullish sentiment, investors need to consider the bigger picture. For example, in Q1 2023, Carvana held long-term debt of $6.553 billion. In contrast, its cash and cash equivalents amounted to only $488 million.

Cash Flow Struggle

Investors should also take note that Carvana has long struggled to be free cash flow (FCF) positive. Last year, it incurred an FCF loss of $1.84 billion. In Q1 of this year, the company trimmed the red ink to $98 million. Nevertheless, with stiff competition in a troubled consumer economy, Carvana isn’t guaranteed to make good on its upside projections.

In all fairness, though, CVNA stock doesn’t offer a clear-cut opportunity for the bears. Currently, the security hit 88.52 on Fintel’s proprietary Short Squeeze Score, indicating a higher risk of a short squeeze materializing relative to its peers. At the moment, CVNA has a short interest of 64.31% of its float.

The post Here’s Why Carvana Investors Should Take a Cautious Approach appeared first on Fintel.

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