From early 2023, NVIDIA (NASDAQ: NVDA) The stock price has risen 785%. The artificial intelligence (AI) boom has propelled the business to new heights, and investors are excited about its future.
but, E-commerce stocks The stock price of the fast-growing online car retailer is soaring faster than that of AI infrastructure companies. Carvana (NYSE:CVNA) That’s up 3,270% since the start of 2023, with $1,000 now worth roughly $34,000.
You might be thinking now is the time to capitalize on the momentum and make some big profits, but is it too late to buy Carvana stock?
Improving the foundations
To say Carvana was a struggling company would be an understatement. In fact, the company was literally on the brink of bankruptcy, a situation that was accelerated by Carvana’s acquisition of the ADESA auction platform. Management Debt restructuring carried out 1 year agoreducing interest payments and extending maturities.
Management actions to clean up the balance sheet, or at least give the company some breathing room, have worked wonders in boosting investor sentiment towards the stock. Near-term uncertainty has been significantly reduced.
Carvana also deserves credit for improving its fundamentals: In 2022, the company saw its sales volume decline 3% and its net loss balloon to $2.9 billion. Revenue and volume fell sharply in 2023, but a relentless focus on cost reduction led to a strong improvement in the income statement.
Though the numbers are small, Carvana has posted profits in each of the first two quarters of 2024. The company is also growing. The stock’s phenomenal performance shows that even the most modest fundamental improvements can have a beneficial impact when market expectations are extremely low. But Carvana isn’t out of the woods yet.
The big picture
Ignoring the company’s financials (Carvana still has $5.6 billion in long-term debt), it’s clear that the company is solving a big problem in the industry: Consumers are generally dissatisfied with the traditional car-buying process. Shoppers have to negotiate with salespeople, process reams of paperwork, and choose from a limited inventory. What’s more, the entire process can take hours.
Here’s where Carvana really excels: Consumers can buy and finance a car in just minutes. And they have a huge fleet of cars nationwide. Plus, Carvana offers free delivery on select cars and a seven-day trial period. It’s no wonder the business sold 131% more cars in its most recent quarter than it did five years ago in Q2 2019.
The story continues
It’s also easy to be optimistic about the long-term growth outlook: About 36 million used cars were sold in the U.S. last year, and based on 2023 figures, Carvana’s market share would be less than 1%. It’s a highly fragmented industry, and online-only platforms could penetrate and grab a larger share.
But there is competition: There are traditional dealerships, many of which are starting to ramp up their digital offerings, and Carvana also has to compete with larger auto retailers like Amazon.com Inc. Autonation and CarMax.
Moreover, Carvana’s ultimate success is far from certain. Many issues could arise. Companies could again find themselves in financial difficulty, or the economy could fall into a deep recession. In the most recent quarter, 67% of operating profits were spent on interest payments, There isn’t much leeway.
From pessimism to optimism
At its low in December 2022, the price-to-sales multiple was very cheap at 0.025. That multiple has now skyrocketed to 2.6. In my opinion, the valuation is no longer compelling. The argument becomes more compelling when you realize that Carvana is still a risky business to own.
Investors should think carefully before buying stocks.
Should you invest $1,000 in Carvana right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends CarMax and NVIDIA. The Motley Fool has a disclosure policy.
The post 1 Stock That Has Rised More Than Nvidia Since the Beginning of 2023: Is It Too Late to Buy? was originally published by The Motley Fool.
