3. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 47
Carvana Co. (NYSE:CVNA) is an automotive retail company operating an e-commerce platform for the sale and purchase of used cars in the US. The company is based in Tempe, Arizona.
John Colantuoni at Jefferies has a Hold rating on shares of Carvana Co. (NYSE:CVNA) as of October 6. The analyst also placed a $23 price target on the stock.
The company went from being Wall Street’s top pick for used car retailers to a meme stock in light of cost-cutting and layoffs. Yet it still represents an attractive investment opportunity particularly for Reddit traders.
Carvana Co. (NYSE:CVNA) was found among the 13F holdings of 47 hedge funds in the second quarter. Their total stake value was $808 million.
RV Capital, an investment management firm, mentioned Carvana Co. (NYSE:CVNA) in its second-quarter 2022 investor letter. Here’s what the firm said:
“I wrote about Carvana as recently as my 2021 letter. In the short period of time since, the stock has lost much of its value. It has been a traumatic experience, so to skip straight to the punchline, no I have not enjoyed the decline in the share price.
Oddly enough given all that has happened, there is not much I would change in my 2021 letter. There was, however, one enormous mistake on my part which I would like to be completely clear about. I underestimated the financial leverage of the company. I hate debt and seek to avoid it at the companies I invest in. At companies, where debt is an unavoidable part of the business, I try to make sure that it is low both in absolute terms and relative to peers. And yet, an impartial observer looking at the financial situation of Carvana today might reasonably conclude that it will run out of money. This is not the way that I seek to invest – period.
In my defence, the company was not overly indebted at the time we invested. The debt came about through a series of coincidences – some under the company’s control, others not. The company over-hired towards the end of 2021, like many companies, in anticipation of strong growth in 2022. This growth did not materialise due to a combination of the re-emergence of Covid-19, winter storms, and unprecedented inflation in the price of used cars. The upshot was spiralling losses and growing debt. In addition, a long-planned acquisition came to fruition at the worst possible time from a financing perspective. It bought Adesa’s physical used car auction business. Whilst the acquisition makes a lot of sense in my view given Adessa’s valuable real estate footprint, and Carvana likely had little choice but to complete the deal then or lose it forever, it greatly increased the indebtedness from already elevated levels given the spiralling operating losses…” (Click here to see the full text)
