Carvana sinks after Q4 earnings: long-term investors eye dip

Carvana (NYSE: CVNA) opened in the red today after reporting $511 million in adjusted EBITDA for its fiscal Q4 – notably below the $536 million that analysts had expected.

While the company’s revenue topped estimates, investors were let down by a 100 bps year-on-year decline in margins to 9.1%.

However, there’s still reason to believe this post-earnings decline is a minor “speed bump” in what has otherwise been a stellar turnaround story.

In fact, down over 25% versus its year-to-date high, Carvana stock now reflects a rare opportunity for long-term investors to load up on a quality name at a deep discount.

Why Q4 report doesn’t warrant selling Carvana stock

CVNA saw its gross profit per unit (GPU) come in about $244 below last year’s number in Q4 – but calling it a “weak report” that warrants selling its shares still isn’t fair.

Why? The company, nonetheless, posted record net income of $951 million for the fourth quarter with an exciting 49% year-on-year increase in revenue.

It’s the kind of growth you typically expect from an artificial intelligence (AI) firm, not from an online retailer of used cars.

Moreover, Carvana attributed margin compression to higher vehicle reconditioning costs and faster than expected industry-wide depreciation – factors that may prove temporary as the year unfolds.

Crucially, management remains focused on the horizon, reiterating their ambitious “North Star” goal: selling 3 million retail units annually at a 13.5% margin by the end of this decade.

In short, the Q4 miss feels more like a byproduct of scaling, not a fundamental flaw in the business model – and that warrants buying CVNA stock on the post-earnings dip.

Bank of America sees massive upside in CVNA shares

Despite the initial knee-jerk reaction to a somewhat muted Q4 release, Bank of America analysts remain bullish as ever on Carvana shares, seeing upside in it to “$400” by the end of this year.

According to the investment firm, CVNA remains a “best-in-class” e-commerce powerhouse that continues to gain market share even in a challenging environment.

BofA agreed that there were “some signs of weakness” in the quarterly report – but said Carvana’s GPU still sits over $4,000 above rival CarMax’s, reinforcing that “it remains in growth mode.”

At 2.84x sales, CVNA is rather attractive for a dominant player that’s systematically outmuscling traditional dealerships, it concluded.

How to play Carvana after its Q4 earnings

The long-term thesis for Carvana is bolstered by its unrivaled infrastructure and data advantages.

Its integration of ADESA physical auction sites and expansion of same-day delivery are creating a “flywheel effect” that competitors simply can’t match.

Financially, CVNA has pivoted from a “growth-at-all-costs” mindset to a disciplined, profitable machine, as evidenced in a 42% year-on-year increase in its adjusted EBITDA.

With unit economics hitting record highs and a massive runway for consolidation in the fragmented used-car market, CVNA shares’ current valuation looks like a bargain for those willing to look past the quarterly noise.