Is it safe to buy the Carvana stock dip?
- Carvana stock price has been in a strong bearish trend.
- It has plunged by more than 97% this year.
- There are serious bankruptcy risks as interest rates rise.
Carvana (NYSE: CVNA) stock price has had a remarkable fall from grace as concern about the company continued. It plunged to a low of $6.8, which was its all-time low. The stock has plunged by more than 98% from its highest level in 2021 and by 97% this year.
Will Carvana go bankrupt?
Carvana is a technology disruptor in the auto industry. The firm makes it possible for people to buy cars through the internet. Customers can have the cars delivered or they can pick them in one of its several vending machines.
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Carvana business had spectacular growth during the pandemic. This growth happened as interest rates remained at a record low and as the government dished trillions in stimulus. Used car prices were in a strong downward trend.
The situation has changed this year as interest rates and inflation jumped. As a result, the number of used cars sold has fallen sharply. This has affected companies like Carvana and Vroom. The firm has also laid off thousands of employees.
Carvana has reached distress levels. For example, the firm recently issued $3.25 billion bonds with a coupon of 10.25%. As a result, the firm’s interest expense will more than double. The firm has insisted that it has adequate liquidity to fund growth in the next few months. It has $316 million in cash and around $2 billion in real estate. Still, analysts believe that Carvana could go bankrupt.
Still, a key concern is that Ernest Garcia II, the father of the firm’s CEO has been in a selling binge in the past few years. While he recently bought stock worth $269 million, he has been selling for years. In the past few years, he has sold stock worth over $1 billion. Ernest Garcia, the CEO bought stock worth $24 million in April.
Carvana stock price forecast
The weekly chart shows that the CVNA stock price has been in a strong bearish trend in the past few months. It dropped below the important support levels at $22 and $19.37. The stock has moved below all moving averages while the accumulation and distribution has tumbled.
The Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the oversold levels. Therefore, the stock will likely continue falling as sellers target the next key support level at $5.