Carvana stock: it's time you moved to the sidelines

Carvana Co (NYSE: CVNA) has had a stunning journey from near bankruptcy all the way up to expectations of more than $1.2 billion in adjusted EBITDA this year.

Shares of the online used car retailer are up another 20% this morning after coming in handily above Street estimates for profit and revenue in its fiscal third quarter.

Still, Victoria Greene of G Squared Private Wealth says Carvana stock “is a sell for me”.

Why is Greene dovish on Carvana stock?

Carvana improved its gross profit per vehicle (closely watched metric) a significantly more-than-expected 25% on a year-over-year basis to $7,427 in the third quarter.

But Victoria Green recommends taking profit in CVNA since a well over 400% year-to-date gain suggests the rally has gotten a bit ahead of itself. On CNBC’s “Power Lunch”, she cited rising competition as another reason to consider pulling out of Carvana stock.

The online used car retailer improved its inventory in the third quarter but remains below its target available website inventory levels, as per its letter to the shareholders on Thursday.

Additionally, Carvana stock does not pay a dividend at writing. So, it remains unattractive for those interested in generating passive income out of the equities market.

Higher cost of living could be a bane for CVNA

In September, Ally Financial flagged credit challenges in retail auto and said higher cost of living could make things even worse in the coming months.

Its warning may be another reason to consider moving to the sidelines in Carvana stock as Ally is the biggest buyer of finance receivables that CVNA sells.

Ally Financial even has an agreement in place under which it will buy $4.0 billion of finance receivables from the New York listed firm between January, 2024 and January 2025.

Additionally, Carvana sure has been a successful turnaround story but it doesn’t have the cleanest of balance sheets.

The company based out of Tempe, Arizona has $5.43 billion worth of long-term debt at writing.

Wall Street also currently rates Carvana stock at “hold” only.

The average price target on the online used car retailer sits at $228 but it climbed to $255 already following the strong Q3 earnings report today.

Note that if you had invested $1,000 in CVNA shares at the start of 2023, you’d have more than $50,000 today.