Assessing the Timing of Investing in Carvana's Stock

August 21, 2024 12:00 AM PDT | By Team Kalkine Media

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Assessing the Timing of Investing in Carvana's Stock — Image source: Shutterstock

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Headlines

- Carvana’s (NYSE:CVNA) stock exhibits extreme volatility, with a beta value of 3.43, indicating larger price swings compared to the broader market.

- Currently, Carvana’s stock is reaching new 52-week highs, showing a 518% increase from its annual lows.

- Despite recent gains, the stock is still 57% below its all-time high of $370 per share from August 2021, and the company has faced significant financial challenges in recent years.

Carvana's stock, known for its high volatility, stands out with a beta value of 3.43. This means that its price movements are approximately 3.43 times more pronounced than those of the broader market. For comparison, the most unpredictable stock in the S&P 500 is APA Corporation with a beta of 3.26, followed by various casino and cruise line stocks.

Currently, Carvana's shares are experiencing substantial gains, reaching new 52-week highs after a significant decline during the inflation crisis of 2022. This impressive rebound is notable among American stocks with market capitalizations over $9 billion, as Carvana has surged 518% from its annual lows. The next highest gain on this list is 353% by MicroStrategy.

This meteoric rise in Carvana’s stock may appear both impressive and daunting, depending on one's perspective on high-risk investments.

Historically, Carvana’s stock has seen extreme valuations, with an all-time high of $370 per share in August 2021. Today, the stock is trading 57% below this peak. The recent performance shows a recovery but remains far from its past highs.

The company faced severe financial hurdles, including negative revenue growth and persistent negative free cash flows from its 2016 IPO until spring 2023. The severe downturn in 2022 led to a cash crunch, which Carvana navigated by increasing its debt load amidst rising interest rates.

Given the stock’s history and current situation, the question of whether the recent gains will continue remains open.

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