Shares of Carvana (NYSE:CVNA), an online car buying and financing platform, jumped 11% Friday morning after the market digested a solid fourth-quarter result and a strong upgrade from Morgan Stanley analyst Adam Jonas.
Carvana has been no stranger to impressive growth figures in recent years, and the fourth quarter -- amid a pandemic that accelerated Carvana's buy-online approach with consumers -- was no different. Retail units sold jumped 43%, compared to the prior year, which helped drive revenue up 65% to $1.83 billion. Total gross profit jumped 71% thanks to a continued focus on improving gross profit per unit (GPU). In fact, 2020 marked the seventh consecutive year of $400 GPU improvement. For context, total GPU during the fourth quarter reached $3,379. Carvana's growth and network expansion hasn't come cheap, and the company's net loss increased from $126 million in the prior year to $155 million during the fourth quarter. That net loss also includes $34 million of debt extinguishment costs from refinancing some of its debt.
A second driving force behind Carvana's stock move Friday is likely Jonas' upgrade on the stock to overweight with a price target of $420 per share. "We believe Carvana is uniquely positioned to serve an automotive and transportation TAM that goes far beyond the used car market, driving potentially far higher growth that is not reflected in today's share price," Jonas said.
Carvana has proven very capable of adapting to the new realities and consumer behavior during the COVID-19 pandemic, and the company is poised to continue growing. It was the fastest growing automotive retailer in 2020 and became the second-largest used auto retailer in the U.S. in only its eighth year in operation. The company needs to continue driving toward profitability, but if it can accomplish that, Jonas' $420 price target doesn't seem too far-fetched.