Carvana Co.’s Fourth-Quarter Results

Wall Street analysts were caught off guard by Carvana Co.’s fourth-quarter results, as they fell short of both bottom- and top-line expectations. However, the significant surge in the stock price following the earnings report indicates investors’ enthusiasm over the company’s record gross profit per unit (GPU) and optimistic outlook.

Impressive Stock Performance

The stock price of CVNA skyrocketed by a remarkable 28% in Friday’s premarket trading session, setting it up to open at its highest price level since April 2022. This surge marked the largest one-day gain since its exceptional 40.2% increase on July 19, 2023.

Record Gross Profit per Unit

Despite reporting a wider-than-expected loss for the fourth quarter, Carvana revealed record GPU figures of $5,511 per unit for the year. This represents an impressive 82.4% surge from the previous year. Furthermore, the company’s projection of crossing $100 million in profitability for the first quarter raised investor confidence.

Analysts Upgrade

Raymond James analyst Mark Ingles upgraded Carvana’s stock rating to market perform, only a week after downgrading it to underperform. He originally doubted Wall Street’s estimate of adjusted Ebitda but acknowledged the strong outlook provided by the company.

Mixed Stock Performance

While the stock had experienced a 1% loss year-to-date through Thursday, it had witnessed an astounding 1,017% surge in 2023. This fluctuating performance underscores the volatility and unpredictability of the stock market.

Analyst Reactions

He wasn’t the only analyst who was surprised.

After the results, of the 23 analysts surveyed by FactSet who cover Carvana, only two were bullish, while 16 were neutral and five were bearish.

No less than eight analysts raised their stock price targets after the results. The new average stock price target of $46.44 implied an 11.4% downside from Thursday’s closing price of $52.41.

Short Interest Insights

That compares with the short interest as a percent of float for the original “meme” stocks of GameStop Corp. GME, -0.37% of 22.4% and of AMC Entertainment Holdings Inc. AMC, -3.28% of 10.9%.

Industry Outlook

“But the impressive improvement in cost structure and unit economics continues, which should enable leverage and industry leading margins once top line trends resume,” Baker wrote in a note to clients. “This idea, along with still elevated short interest, are leading to a significant pop in shares.”