Carvana Stock Rout has hit 97% this year as used car prices crash

(Bloomberg) — Shares of online car dealer Carvana Co. are headed for historic lows as investors grow more concerned about the continued decline in used vehicle prices.

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The company’s stock price fell as much as 14% to $6.90, on track to close at a record low. Carvana, once touted as a disruptor in the used-car dealer industry for its online sales, has seen recession-wary investors flee risky and expensive growth stocks this year.

Carvana shares have plunged 97% so far this year as potential buyers grapple with higher interest rates and stubborn inflation. Just last week, the company said it was cutting about 1,500 jobs, or 8% of its workforce, after burning through $2 billion in cash in the six months ended March 31, by at least one measure. Meanwhile, trading in its bonds suggests the market believes there is a strong chance of a default.

“As used car prices decline, we believe Carvana will struggle to profit from vehicles that were previously purchased at high prices,” Argus Research analyst Taylor Conrad wrote in a Monday note, downgrading the stock to sell from hold and noting that the company is highly leveraged. “We believe the stock is overvalued.”

In general, Wall Street’s stance on Carvana has changed this year as valuations of unprofitable companies across the board have collapsed, investors fleeing for safety and cash growing tighter. The average analyst price target for the company currently stands at $24, down from $375 just a year ago.

It reflects the story of another stock market darling during the pandemic, whose business faces the challenges of returning to a more normal pace after a surge in demand. Hedge funds trimmed their positions in Carvana in the third quarter, making it among the biggest decliners in the consumer discretionary group.

(Adds context and details in paragraphs three, five, and six, updates stock performance in paragraphs two and three.)

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