Carvana Stock Is ‘Grossly Undervalued,’ Analyst Says

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Carvana’s stock has declined 84 per cent this year.

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Mark Ralston / AFP via Getty Images

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Falling prices for used cars, rising interest rates and a series of regulatory challenges have plucked Carvana stock over the past few months. According to Piper Sandler, it’s time to try and buy back the shares.

Analyst Alexander Potter upgraded Carvana (ticker: CVNA) shares from neutral to overweight on Monday, even as he lowered his price target from $98 to $73. The stock is now 10th as valuable as it was a year ago, suggesting it is now “extremely undervalued,” he wrote.

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“CVNA could easily continue to decline, but with so much potential, we think investors should consider owning at least some CVNA,” Potter wrote in a research note.

Potter estimates that Carvana’s sales volume will reach 3.3 million units in 2035, accounting for about 8% of the US used car market. In turn, increasing volumes will boost the Ebitda margin or margin after earnings, interest, taxes, depreciation and amortization.

The analyst recognized that before the company could achieve its long-term potential, it needed to survive the following quarters. Carvana has been under pressure due to declining demand for used cars amid a slowing macroeconomic environment. There are also concerns about the company’s acquisition of physical auction brand ADESA for $2.2 billion. Potter called the move a “sound strategic decision”, but acknowledged that it was a “strange timing” because of the debt Carvana would have to take.

baron’s Earlier this summer it was reported how the company’s growing pains stemmed from delayed paperwork, which included failing to register new cars under customers’ names. Regulators in Illinois have filed criminal charges against the company and are considering suspending the company’s license in the state.

Carvana stock rose 8.2% to $39.65 on Monday. Shares have fallen 83 per cent this year.

Write to Sabrina Escobar at [email protected]

Credit: www.marketwatch.com /

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