The once-blazing Carvana is stalling as the market for used cars shrinks and issues with its business model become harder to gloss over, according to Wedbush. Analyst Seth Basham downgraded the stock to neutral and cut the price target a whopping 70% to $15, now implying the stock has downside of 17.7%. “While we have been cautious on the near-term outlook for CVNA for some time, we have maintained a positive long-term outlook given potential for solid unit economics at scale,” Basham said in a note to clients. “However, a further deterioration in market conditions, a bloated cost structure, and high cash burn make this potential less likely to achieve.” The online platform for used cars was a pandemic winner as economic shutdowns led consumers away from car lots and toward its website. Its pandemic closing high of $360.98 in August 2021 was nearly 300% higher than its trading value at the start of 2020. But the pandemic darling’s shine has since rusted as car lots reopened, supply increased and consumers turned away from big-ticket items like cars amid inflationary pressures. Carvana’s third quarter retail unit sales are expected to be down about 6% from the same period a year ago, Wedbush forecasts. Meanwhile, the stock is down about 92% so far this year. Basham said the downgrade stems not just from sliding demand, but from concerns over how Carvana does business as the company’s cost base is too high. It will likely have to refinance its senior notes due in 2025, he said. Carvana, like other e-commerce platforms including Wayfair , have considered building out in-person footprints as demand for in-person shopping returned coming out of the pandemic. The company has a few dozen “car vending machines” throughout the country. But Basham said Carvana’s acquisition of Adesa’s U.S. physical auction business was another nail in the coffin as it added $336 million in incremental annual expense for reconditioning capacity it does not need. Basham said competitor CarMax , which is trading down about 52.4% this year, also has weakening financials. — CNBC’s Michael Bloom contributed to this report.
