Are Carvana’s (NYSE:CVNA) Liquidity Concerns Overblown?

The downtrend in Carvana’s (NYSE:CVNA) stock continues as the online platform for buying and selling used cars closed about 32% lower last week. Year-to-date, CVNA stock has lost about 97% of its value. While CVNA announced job cuts to reduce cash burn, this angered investors and raised concerns over its liquidity.

Addressing liquidity concerns, Needham analyst Chris Pierce stated that “investors have been unwilling to give them credit for liquidity beyond balance sheet cash.” The analyst doesn’t expect investors’ opinions to change much about CVNA’s liquidity until end-market demand improves and its cost-saving measures show some results.

However, Pierce maintains a Buy rating on Carvana stock. The analyst added, “CVNA’s brand equity, share gains and unit capacity keep us positive, combined with a potential liquidity event as a clearing event allowing investors to think longer term.”

While Pierce is bullish, Oppenheimer analyst Brian Nagel downgraded the CVNA stock to Hold from Buy citing significant financial and operational risks.

CVNA had total liquidity of $4.4 billion at the end of Q3. Meanwhile, its total debt stood at about $6.83 billion. Its high debt, cash burn, and weak sales environment elevate financial risk.

Is Carvana a Buy, Sell, or Hold?

Carvana stock is trading extremely cheap (it has a price-to-sales multiple of 0.06) due to the considerable decline in its price, and Wall Street analysts are cautiously optimistic. CVNA stock has received seven Buy and nine Hold recommendations for a Moderate Buy consensus rating.

Moreover, analysts’ average price target of $33.27 implies a solid upside potential of 312.8%.

Bottom line

Carvana is struggling to remain afloat amid rising interest rates, lower demand, and vehicle price depreciation. Furthermore, the financial risk associated with high debt and dwindling sales could continue to stall the recovery in the short term. While analysts are cautiously optimistic, CVNA stock scores a third out of 10 on TipRanks’ Smart Scoring system, implying weak prospects.


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