When you next search for ” volatility in a dictionary, you could encounter a Carvana ( CVNA 1.72% ) logo.
I’m joking, naturally, but the person who buys cars and operates vending machines truly exemplifies extreme unpredictability.
The most unpredictable individual in the S&P 500 (S&P 500 Index: ^GSPC) The market index, which Carvana is not a part of, includes companies involved in oil and gas exploration. APA Corp with a beta value with a beta of 3.26. The next four companies on this list of extremely volatile stocks are casinos and cruise lines. Carvana surpasses them all with a beta of 3.43.
This indicates that Carvana’s stock generally follows the overall trend of the stock market, but its fluctuations are approximately 3.43 times more pronounced than those of the S&P 500. When the market declines, Carvana’s stock falls even further. Conversely, when the market is performing well, Carvana’s stock typically rises significantly.
I’m currently observing a significant fluctuation. Carvana’s stock is reaching new 52-week highs, recovering from a steep decline during the inflation crisis of 2022.
It truly is an impressive high point. Extending past the S&P 500, there are 880 companies in the American market with market capitalizations exceeding $9 billion. Carvana is outperforming all of them, boasting a 518% increase from its yearly low. Coming in second place on that list is Bitcoin ( BTC 2.23% ) buyer MicroStrategy ( MSTR 4.53% ) experiencing a 353% increase from its recent lowest point.
Carvana makes a highly risky investment in Bitcoin appear quite composed. Whether that’s admirable or frightening depends on what are your thoughts on engaging in high-risk investments? .
Carvana’s stock is currently experiencing a significant increase. Is it too late to invest, or does the chart suggest there’s potential for further growth?
The previous peak stock prices of Carvana
As anticipated with a highly volatile stock such as Carvana, the current annual price peak is far from the stock’s historical high. The all-time high was $370 per share, reached in August 2021. Currently, the price is 57% lower than that peak.
Carvana’s stock has a tendency to hit extremely high valuations during prosperous times. However, the question remains whether it has the potential to reach those heights once more.
The recent achievements were achieved through considerable effort. Carvana experienced not just a slowdown in revenue growth in 2022, but actually saw declines over several quarters. From its initial public offering (IPO) in 2016 until the spring of 2023, the company consistently reported negative free cash flows each quarter. As its stock price plummeted in 2022, the rate at which it was burning through cash accelerated. Carvana managed to navigate this financial strain by incurring additional debt, despite the challenges posed by increasing interest rates.
The intense challenges Carvana has faced are the reason behind the volatility of its stock in recent years.
Carvana is experiencing new expansion and generating positive earnings.
The company is performing well these days. Carvana has achieved net profits in three of the past four quarters, and its previously stagnant revenue is now on an upward trend. Most Wall Street analysts are highly optimistic about this stock, with 10 out of 14 firms rating it as a “buy” or higher.
At the end of 2022, Carvana’s stock was extremely undervalued, trading at just 0.03 times its sales. However, that valuation has now increased to 2.5, a significant departure from the earlier low pricing typically associated with companies facing potential bankruptcy. With strong earnings, renewed sales growth, and healthy cash flows, Carvana seems to have moved away from that precarious position.
It’s worth noting that prices for used cars and the number of vehicles sold are decreasing from the peak levels reached in 2021, shortly after Carvana’s stock performance started to decline. The used car market is returning to normal following a surge driven by the COVID-19 pandemic. Carvana’s management is adapting to this changed market landscape, which is also shifting away from traditional internal combustion engines towards electric vehicles.
There’s a great deal to absorb, and Carvana has previously mishandled the market’s significant shifts.
Currently, the company appears to be in a strong position. Carvana has been regularly profitable throughout 2024, although it faces a significant challenge due to its substantial and costly debt. Interest expenses have skyrocketed to $664 million over the past four quarters, a sharp increase from $176 million in the 2021 fiscal year. Despite this, the company is earning enough to begin reducing its troublesome debt.
Is it a good time to purchase Carvana stock?
How does Carvana rank on the scale from “failed recovery” to “guaranteed revival?” I’d say it falls somewhere in the middle, as the company still has much to demonstrate.
Therefore, Carvana is not the growth stock I’m most excited about purchasing right now However, I anticipate that the volatile stock chart will stabilize as the company enhances its operations and manages its significant debt. Typically, a growth stock trading at 2.5 times sales would be a clear buy for me, and Carvana might reach that point in the future. For the time being, I suggest holding off and not investing just yet. There are still numerous potential risks that could derail this turnaround.
