Carvana’s stock price is up 40% from January lows as shorts look for cover ahead of Wednesday’s earnings update. But its $16.7bn valuation is just 5x revenues which is not expensive for a company growing consistently at 100%. With an estimated market share of just 0.4% it still has a long runway for growth
Shorts point to the lack of profitability but how many companies growing at 100% plus are generating profits?
The more important metric for me is that revenues are growing faster than expenses. As a result operating loss margins have fallen steadily from -36.25% to -7.25% (-5.1% in q3) over the past 5 years and an operating profit looks very likely in the next year or two.
Once breakeven is achieved I would expect profits to rise exponentially thereafter. Carvana has a highly scalable model that already reaches 67% of the US population. Growth should be driven increasing by market penetration rather than new outlets meaning cost growth should delerate considerably.
I actually think a valuation of 10x full year revenue (guidance $3.9bn) would be reasonable for a company growing at 50% per year while Caravana is actually growing at 100%. Nevertheless a 10x valuation would equate to $39 billion or a stock price of $250. Significantly above current $110 price.
This is not a recommendation to buy or sell. Stocks are not suitable for everyone. Please do your own research.