Is Carvana stock a good buy amid the remarkable sell-off?

on Mar 3, 2022
  • Carvana stock price has dropped by 68% from its all-time high.
  • The company has been on a strong growth path recently.
  • Investors expect its growth to flatten in the coming months.

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The Carvana (NYSE: CVNA) stock price has been in a strong bearish trend in the past few months even as the used car market remains in a good shape. The shares are trading at $138, which is significantly lower considering that they were trading at $377 in August last year. The 63% drop has brought the company’s market capitalization to about $23 billion.

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CVNA sell-off explained

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Carvana is a technology company that makes it easy for people to buy cars through the internet. The firm buys vehicles in car auctions, conducts checks, and then lists them on its website and apps. After this, people can browse and see the vehicles, request financing, and then buy. 

Buyers can decide to collect the car in person in one of the company’s several locations. Alternatively, it can be delivered to them. Most importantly, they can return the car if they find it has mechanical issues.

Carvana and other used car companies have done well in the past few months as the supply chain challenges have worsened. With new cars and trucks being hard to find, many people have moved to the used car industry. 

Indeed, the most recent results show that Carvana’s revenue jumped by 105% year on year to $3.75 billion. That was a $247 million higher than what analysts were expecting. The company also announced that it had sold 1 million cars since its inception. It sold 425,237 cars in 2021 and 113,016 in the fourth quarter.

To supercharge its growth, the company announced that it will spend over $1 billion to acquire Adesa car auction. It expects that the acquisition will lead to faster growth in the coming years. 

The Carvana stock price has dropped sharply because analysts expect that its growth will slow in the coming months.

Carvana stock price forecast

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Carvana stock

The daily chart shows that the CVNA stock price has been in a strong bearish trend in the past few months. The decline accelerated when the stock moved below the key support level at $220, which was the lowest point in March last year. 

The shares have formed a death cross, which happens when the 50-day and 200-day moving averages make a crossover. Therefore, there is a likelihood that the stock will maintain its bearish trend in the coming months. If this happens, the next key support level to watch will be at $100.

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