Rosalind Evans
Carvana (NYSE: CVNA) has witnessed a dramatic turnaround. Despite the stock plummeting by 98% in 2022, it made an impressive recovery with a 468% increase in 2023, surpassing the Nasdaq Composite’s 30% rise. But does this high-volatility growth stock have the potential to increase your wealth over the next decade? Let’s examine.
Significant Potential for Growth
In 2022, Carvana saw a sale of 412,000 used cars, a significant increase from the 44,000 sold five years earlier in 2017. During the same period, the company’s revenue soared nearly 15 times. Considering the typical 40 million used car transactions in the U.S. annually, a relatively stable figure, Carvana’s market share is expanding. However, it still constitutes a minute fraction of the overall industry, indicating a vast growth opportunity. This meteoric growth trajectory had undoubtedly attracted investors before the stock’s decline at the end of 2021.
The conventional method of purchasing a used car, which typically involves long hours, limited inventory, and negotiation with salespeople, is not widely favoured. It’s not surprising, then, with the rise of online shopping, that this mode of purchase extended to vehicles. Carvana provides an expansive nationwide inventory, free delivery, and financing options, all from the comfort of one’s home, making transactions quick and easy. This approach is truly revolutionary.
Even with the shares still 93% below their peak, Carvana’s stock trades at a price-to-sales (P/S) ratio of 0.2, significantly lower than its historical average P/S ratio of 1.2. Over half of the outstanding shares were short-sold (as of June 15), a sign of the prevailing negative sentiment around the stock. This could present an attractive opportunity for bold investors.
Carvana’s significant growth potential and business model innovation make it an intriguing prospect for daring investors willing to embrace volatility. The company has a distinct edge due to its unique position in a sizable and largely untapped market. It has defied expectations and risen from the ashes, but it’s not without its share of risks. Regardless of the pessimistic sentiment surrounding the stock, Carvana could be an unexpectedly rewarding venture for those who understand its potential and have the stomach for high-risk, high-reward investment.
