What happened

Shares of Carvana (NYSE:CVNA) downshifted last month. The online car seller seemed to succumb to concerns over valuation, as the stock fell even after a strong third-quarter earnings report. Meanwhile, a broader sell-off in tech stocks and a rise in coronavirus cases also seemed to pressure the stock.

According to data from S&P Global Market Intelligence, the stock finished the month down 17%. As you can see from the chart below, Carvana shares were descending for most of the month and slipped further at the end of October after its earnings report came out.

CVNA Chart

CVNA data by YCharts

So what

The first warning sign for Carvana came on Oct. 8, when Baird analyst Colin Sebastian said that the stock's upside potential may be limited over the near term due to the stock's already strong gains this year and potential supply constraints that could lead to unfulfilled demand.

On Oct. 20, the stock fell 6.4% as Piper Sandler analyst Alexander Potter echoed those concerns, saying that Carvana may miss second half estimates. Potter noted that app downloads for the Carvana app had turned negative on a year-over-year basis five weeks ago and had stayed that way, the longest period of decline for the app downloads and potentially a sign of waning demand.

A couple smiling and driving.

Image Credit: Getty Images.

Finally, in its third-quarter earnings report, the company said that revenue rose to $1.54 billion, edging out guidance at $1.53 billion, while the company posted its first positive EBITDA quarter with a margin of 1.4%, or $21 million. On the bottom line, its per share loss of $0.10 easily beat estimates at a loss of $0.33. The company also said vehicles purchased from customers rose 128%, helping to replenish its inventory and a positive sign as the company makes higher profit margins from cars it buys from customers.

Carvana declined to give guidance for the fourth quarter, though management called for a strong 2021. Shares slipped 3% after the earnings report came out after initially trading higher as pressure on tech stocks weighed on Carvana.

Now what

Even with last month's slide, the stock has more than doubled year to date as used car demand has bounced back robustly from the early months of the pandemic. However, with rising coronavirus cases in much of the country, the impact of a potential second lockdown is unclear and could damage the company's business as well as the greater economy. Investors seem to be taking a cautious tack after a surge in the stock earlier this year.


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