Why Carvana Stock Put the Pedal to the Metal Today

What happened

Shares of online car marketplace Carvana (NYSE:CVNA) hit the accelerator at market open this morning, racing ahead more than 11% after reporting earnings last night before easing off on the gas and slowing to just a 3% gain as of 11 a.m. EDT.

And the most surprising thing about all of this is that Carvana’s stock price slowed down at all.

Red muscle car burning rubber

Image source: Getty Images.

So what

Heading into Q2, you see, analysts had forecast that Carvana would lose $0.41 per share this quarter on sales of just over $2.4 billion. As it turned out, Carvana earned a profit — a big one, $0.26 per share — and on sales of more than $3.3 billion.    

As Carvana boasted, it sold nearly twice as many cars and trucks in Q2 2021 as it had back in Q2 2020 — unit sales up 96% — and revenue on those sales nearly tripled — up 198%. And with both volume and prices of used cars sold surging, Carvana flipped from a $0.62-per-diluted-share loss a year ago to a $0.26 profit.

Now what

Speaking of surging car prices, Carvana management commented that although “the unique macro environment provided a [gross profit per unit sold, or GPU] tailwind in the quarter, we also believe the business and our team outperformed relative to the industry.” Furthermore, management predicted that Carvana is “on the path to … delivering more than 2 million cars per year, and to becoming the largest and most profitable automotive retailer.”

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Although management declined to give specific financial guidance for the rest of this year, it did say that demand for used cars is “exceptional,” and that it’s currently selling as many cars as its “operational capacity” permits — and collecting as much as $4,000 per car sold in gross profit.

Times the promised “2 million cars per year,” that appears to imply gross profits (but note: not net) of at least $8 billion.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/08/06/why-carvana-stock-put-the-pedal-to-the-metal-today/

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