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Why Shares of Carvana Are Down Again Today

By John Rosevear – Feb 28, 2020 at 2:36PM

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Investors aren't happy with the 2020 guidance.

What's happening

Shares of Carvana (CVNA -2.85%), an online used-car dealer known for its distinctive "vending machine" retail stores, were down again on Friday following a fourth-quarter earnings report that disappointed nervous investors.

As of 2 p.m. EST today, shares were trading down about 9.2% from Thursday's closing price.

So what

Carvana's fourth-quarter report, released after the markets closed on Wednesday, wasn't all bad. Revenue jumped 88% from the year-ago period to $1.1 billion, on an 82% increase in retail sales. That was roughly in line with expectations. 

Carvana's retail store in Houston, Texas.

Carvana's dealerships have a distinctive "vending machine" tower. Image source: Carvana.

But Carvana's net loss also jumped substantially year over year, to $125.7 million from $86.4 million in the fourth quarter of 2018. Gross profit per unit sold rose to $2,854, up by $723 from a year ago but down from the second and third quarters, and -- importantly -- still short of the company's standing $3,000 profitability target. 

That fourth-quarter profitability disappointed in more ways than one: The fourth-quarter shortfall meant that Carvana's full-year gross profit per unit came in at $2,883, again short of its target.

Now what

Guidance for 2020 was also a bit disappointing. It's expecting its retail sales to grow by 44% to 49% in 2020, a sharp deceleration from the triple-digit percentage growth that we've seen over the last six years. On the other hand, Carvana expects its profit per unit to rise to between $3,200 and $3,400, which might be overly optimistic. 

Auto investors seeking bargains in the current market might want to take the time to look carefully before jumping into this one. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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