Why Is Carvana (CVNA) Rising Today?

Despite today's 2.6% jump to $107.4, Carvana may soon be running into resistance as it is now within range of its average analyst target price of $103.0. With an average rating of hold, and analysts assigning target prices from 54.0 to 150.0 dollars per share, investors will be asking themselves if the Auto Retail stock can sustain this bullish run.

With a short interest of 25.9%, we can infer that the market sentiment on Carvana is negative. Each short position represents an investor's expectation and hope that the stock's price will reverse its present course and start falling.

Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy 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, 99.8% 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.

In conclusion, we see mixed market sentiment regarding Carvana because of an analyst consensus of little upside potential, a hold rating, an unusually large proportion of its shares sold short, and a significant number of institutional investors. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.

Here's a snapshot of some important facts to keep in mind about CVNA:

  • The stock has trailing 12 month earnings per share (EPS) of $2.49

  • Carvana has a trailing 12 month Price to Earnings (P/E) ratio of 43.1 compared to the S&P 500 average of 27.65

  • The company has a Price to Book (P/B) ratio of 43.32 in contrast to the S&P 500's average ratio of 4.59

  • Carvana is a Consumer Discretionary company, and the sector average P/E and P/B ratios are 22.06 and 3.18 respectively

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.