We recently compiled a list of the 10 Best Car Stocks To Invest In Now. In this article, we are going to take a look at where Carvana Co. (NYSE:CVNA) stands against the other car stocks.
The automotive industry has witnessed a constant churn of innovation over the last several decades, with car makers continuously providing drivers with new features. However, there has been a different pace of change lately, with the rapid adoption of electric vehicles (EVs) being the most talked-of topic in the industry.
READ ALSO: 10 Best Used Car Stocks To Buy According to Hedge Funds and 10 Best Self Driving Car Stocks To Buy Now.
A lot of the conversations in the automotive space currently revolve around robotaxis, the autonomous taxis for ride-hailing, especially after Elon Musk unveiled the Cybercab in October this year. His company is showcasing the self-driving two-seater at several key locations across the United States in December, with plans to deploy the autonomous services in California and Texas in 2025.
According to a report in Euro News, global EV sales surged in November, with a record-breaking 1.8 million units sold worldwide, overtaking the record set in the prior month by 100,000 units. China accounted for two-thirds of the sales during the month. Around 15.2 million EVs were sold between January and November, growing 25% year-to-date.
The report stated a 3% decline in EV sales in the region comprising the United Kingdom (UK), the European Free Trade Association (EFTA) and the European Union (EU). With 280,000 units sold in November, annual sales for the region reached 2.7 million units. However, the UK is having an improvement in the second half of the year; sales have grown 17% from last year, driven by the Zero Emission Vehicle (ZEV) Mandate.
China is not only leading the EV market but is also on track to take over the global auto industry because of its massive and growing capacity. Earlier this month, the Council on Foreign Relations (CFR) highlighted that the country’s EV capacity will soon match its domestic auto demand, whereas China’s car production capacity is already half of the global demand for automobiles.
It is projected to have a total output of 20 million electric vehicles in 2024, with production increasing between 4-5 million units annually, helped by heavy investments from Chinese firms to expand production. According to the New York Times, China also has the capacity to produce over 40 million internal combustion engine cars a year.
India’s auto market is also seeing impressive growth, contributing significantly to the global market. Annual production of automobiles in the country stood at 25.9 million units in fiscal 2023. The thriving vehicle market has also resulted in a booming auto components industry, which has grown 11.3% during the first half of FY25, driven by strong demand for larger and more powerful cars.
Methodology
We sifted through screeners to identify stocks in the auto manufacturers, auto parts, and auto dealerships industries. From there, we selected the 10 stocks with the highest number of hedge fund investors, based on Insider Monkey’s database of over 900 prominent hedge funds as of Q3 2024. The 10 best car stocks to invest in now have been ranked in ascending order based on the number of hedge funds holding stakes in them. Where two or more stocks were tied on hedge fund sentiment, we used a higher market cap as a tiebreaker between them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer buying a used car with the help of a finance specialist.
Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 66
Carvana Co. (NYSE:CVNA) is one of the fastest-growing car retailers in the United States. Based in Tempe, Arizona, the company operates an online platform to buy and sell used cars. In 2021, it was included in the Fortune 500 list, making it one of the youngest companies to be named in the list – just eight years after it was founded.
The company experienced significant growth during the pandemic years, as the e-commerce industry boomed with restrictions on in-person shopping. However, CVNA’s fortunes suffered in 2022, burdened by high interest rates, rising costs of automobiles, and heavy debt. A year later, it turned things around again, with its share price increasing by over 1000%, driven by cost cuts and strategic debt restructuring.
The growth story is still ongoing. As of December 26, its share price had surged by over 300% year-to-date, as the company focuses on enhancing operational efficiencies and cash flow. Carvana Co. (NYSE:CVNA) is continuing to see strong demand for vehicles. During its recent Q3 2024 earnings call on October 30, the company reported a 34% increase in retail units sold from last year.
Revenue for the quarter was $3.655 billion, up 32% year-over-year. Net income stood at $148 million, whereas operating income was posted at $337 million. Adjusted EBITDA was $429 million, with a margin of 11.7% – a new company record. EPS was logged at $0.64, beating expectations of 25 cents per share.
Looking ahead, Carvana Co. (NYSE:CVNA) anticipates sequential growth in retail units sold in the fourth quarter of 2024 and adjusted EBITDA to be significantly above the high end of its previously communicated range of $1 billion to $1.2 billion for the full year. These forecasts have resulted in a bullish sentiment around the stock, with Wall Street analysts having a consensus Buy rating for CVNA.
Hedge fund sentiment is improving as well. According to Insider Monkey’s database for Q3 2024, 66 hedge funds held a stake in the company, up from 61 at the end of Q2. It is one of the best car stocks to invest in now.
Overall CVNA ranks 2nd on our list of the best car stocks to invest in now. While we acknowledge the potential of CVNA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVNA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock
Disclosure: None. This article is originally published at Insider Monkey.