Shares of Carvana shot up to $76.37 during today's afternoon trading session -- an increase of 6.9% that brings the stock 22.07% over its average analyst target price of $62.56. This may imply limited upside for the Auto Retail stock, whose analysts give it a consensus rating of hold, and target prices spanning from $26.0 to $90.0 dollars per share.
The market sentiment on Carvana seems pessimistic because the proportion of shorted shares in its float is quite high at 31.7%. Each short position represents an investor's expectation and hope that the stock's price will reverse course and start declining.
When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.
Another way to gauge the sentiment on Carvana is to look at the percentage of institutions that are invested in the stock. In this case, 106.3% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.
If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.
Overall, there is mixed market sentiment on Carvana because its an analyst belief that shares are overpriced, a hold rating, an unusually large proportion of its shares sold short, and a significant number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.
Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are CVNA's recent cash flows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 803,000 | 87,000 | 716,000 | 139.0 |
| 2022 | -1,324,000 | 512,000 | -1,836,000 | 41.73 |
| 2021 | -2,594,000 | 557,000 | -3,151,000 | -225.52 |
| 2020 | -608,000 | 360,000 | -968,000 | 2.02 |
| 2019 | -757,000 | 231,000 | -988,000 | -77.06 |
| 2018 | -414,340 | 143,668 | -558,008 |
