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Why Carvana Stock Was Down Today

By John Rosevear – Jun 24, 2020 at 6:49PM

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How will a COVID-19 resurgence affect car sales? It depends.

What happened

Shares of Carvana (CVNA -9.32%), an online used-car buying platform, closed sharply lower on Wednesday amid a broad-based market sell-off on rising numbers of coronavirus cases in U.S. states that reopened early. 

Carvana's shares ended the session at $112.25, down about 12% from Tuesday's close. 

So what

U.S. markets closed lower on Wednesday after reports that new COVID-19 cases are increasing in many parts of the country, reaching new daily highs in states, including Texas and Arizona, that reopened their economies last month. 

It's clear why that's bearish for the broader U.S. market: Rising numbers of new cases could lead state and local governments to reinstitute shelter-at-home orders and restrictions on businesses. Such moves could increase unemployment further and prolong the current recession.

A Carvana store in Miami, with its distinctive vending machine tower garage.

Carvana is known for its "vending machine" stores, but the company has emphasized its safe home-delivery capabilities since the COVID-19 outbreak began. Image source: Carvana Co.

Now what

It's a little less clear why that's bearish for Carvana specifically. On the one hand, Carvana arguably stands to benefit if consumers have to shelter at home for an extended period: The company makes it easy for consumers to buy a used car online, with no dealership visit necessary -- and with pandemic-friendly "touchless" delivery. 

On the other hand, if a national relapse does increase unemployment and prolong the economic downturn, car sales -- including used car sales -- will suffer as cash-strapped consumers postpone purchases. That would, of course, be negative for Carvana. 

Auto investors were clearly worried about the latter outcome on Wednesday. 

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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