(Bloomberg) – Shares of online car dealership Carvana Co. are heading for an all-time low as investors grow increasingly concerned about the continued decline in used-vehicle prices.
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The company’s stock price fell 14% to $6.90, on course to close at a record high. Carvana, which was once touted as a disruptor in the used-car dealership industry for its online sales, has seen recession-worn investors flee risky and expensive growth stocks this year.
Carvana shares have fallen 97% so far this year as potential buyers grapple with higher interest rates and stubborn inflation. Just last week, the company said it was cutting about 1,500 jobs, or 8% of its workforce, after spending $2 billion in cash in the six months ended March 31 by at least one measure. Meanwhile, trading in its bonds shows that the market believes there is a high risk of default.
“As used car prices fall, we believe Carvana will struggle to make a profit on vehicles previously purchased at high prices,” Argus Research analyst Taylor Conrad wrote in a note. from Monday, lowering the rating for the pending sell stock and noting the company is heavily leveraged. “We think the stocks are overvalued.”
Overall, Wall Street’s stance on Carvana has flip-flopped this year as valuations of unprofitable companies across the market have fallen as investors flee for safety and cash becomes more scarce. Analysts’ average price target on the company currently stands at $24, a far cry from $375 just a year ago.
It reflects the story of yet another pandemic-era stock market darling, whose company faces the challenges of returning to a more normal pace following a surge in demand. In the third quarter, hedge funds reduced their positions in Carvana, making it one of the biggest decliners in the consumer discretionary group.
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