How Does the Market View Carvana?

Shares of Carvana shot up to $112.99 during today's afternoon trading session -- an increase of 2.9% that brings the stock 7.04% over its average analyst target price of $105.56. This may imply limited upside for the Auto Retail stock, whose analysts give it a consensus rating of hold, and target prices spanning from $54.0 to $150.0 dollars per share.

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.

One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Carvana, institutional investors own 99.8% of the shares. This would indicate a positive sentiment towards the stock among institutions. What does this really tell us?

Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in CVNA, it probably means they believe it is a solid investment choice. But it could also mean they are buying up shares in an effort to acquire the company or get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.

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 45.4 compared to the S&P 500 average of 27.65

  • The company has a Price to Book (P/B) ratio of 45.58 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.