Should I Buy Carvana (CVNA)? Finance YouTuber Analysis

The YouTuber advises selling Carvana, citing its nearly $30 billion market cap as excessively high. Despite high gross profits, the company's selling and general administrative expenses are also extremely high, leading to only $17 million in net income on $12.6 billion in revenue. He argues that in the used auto business, profitability on every discrete sale is crucial, and Carvana's high valuation is unjustified given its lack of consistent profitability and the low multiples typically seen in the auto sector.

“I just think the valuation of this company is way too high to be buying today and I would absolutely be a seller”

The analyst states Carvana is 'in the too hard pile' for investment, despite its recovery and return to profitability. The concern lies with its high valuation (forward P/E 93, EV/Sales over 2) and the competitive used car market, which could limit future growth and margin expansion. The analyst is not buying it going into 2025.

“definitely not one that I'm buying going into 2025 because I think that growth story and the margin expansion story could come to an end especially as the used car market becomes much more competitive and those prices potentially come under pressure as new vehicle values come down in 2024 and 2025.”

The analyst advises avoiding Carvana due to its current valuation, trading at 78 times earnings, which he believes is overly optimistic given the potential for declining profitability. He argues that the high gross profit per unit is unsustainable due to increasing competition and potential reductions in financing gains and add-on sales. The company also carries a significant debt load of $5.3 billion, which adds to the risk profile.

“definitely not a stock that I'm buying right now and that's in large part based on valuation and the durability of the business model”

Travis Hoium advises avoiding Carvana stock despite its recent rally, arguing that the company's debt refinancing strategy merely kicks the can down the road by increasing the total debt burden through payment-in-kind interest. He believes Carvana's fundamental business is not strong enough to generate the necessary profits to pay off its substantial debt, as it has not been profitable since at least 2016. The recent stock surge is seen as speculative rather than based on fundamental improvement.

“this is absolutely a stock I would stay away from obviously it has a nice run but I think that's more speculation than it is a fundamental Improvement for the business”

Travis Hoium argues that Carvana's recent debt restructuring, while seemingly positive for the stock in the short term, is a 'Hail Mary' that significantly increases long-term interest expenses. He believes the company's business model is unsustainable with the new high interest rates, and bondholders are effectively dictating terms that are unfavorable to equity holders, making it a poor investment.

“I don't think at the end of the day Carvana is going to survive as a company if they're going to have to pay nine percent on the debt that they have outstanding. That is just an astronomical interest rate and is probably not sustainable for the company.”

The YouTuber advises avoiding Carvana stock due to its unsustainable business model. He anticipates further losses for the company, particularly from the depreciating value of Tesla vehicles held in its inventory, as Tesla's price cuts force down used car values across the market.

“carvana is a stock that I simply wouldn't touch right now because it does not have a sustainable business model and we likely have more losses coming from the Teslas that it's holding in inventory”

The analyst advises avoiding Carvana due to its unsustainable business model of overpaying for used cars, which was only viable during periods of low interest rates and high demand. With rising interest rates and falling used car prices, Carvana is struggling to cover its significant debt interest payments, indicating a fundamental flaw in its profitability.

“This is a real problem and in the most recent earnings call they're talking about their path to break even profitability on an EBITDA basis... it is going to be very hard for this company to cover their debt interest payments.”