Had investors watched insider transactions for Carvana (CVNA -6.88%), they may have avoided a 90%-plus fall in its share price. What is trading by company executives telling us now?

Actions speak louder than words

Carvana stock was a pandemic darling. With consumers flush with stimulus cash, and stay-at-home restrictions leaving folks unable to visit used car lots, car-buyers turned to online platforms like Carvana. Sales in 2019 had alerady reached $3.9 billion but were dwarfed by its 2020 sales of $5.6 billion.

That's when things really started heating up for Carvana. When new car makers began finding it harder to find chips to produce new cars, demand for used cars skyrocketed. Low interest rates added fuel to the fire for Carvana sales. From 2020 to 2021, revenue more than doubled to $12.8 billion.

A group of people shopping for a used car.

Image source: Getty Images.

During the second quarter of 2021, the once-in-a-lifetime situation for Carvana led to its only profitable quarter. On top of that, the stock had risen from around $30 in March 2020 to a head-turning all-time high of $370 in August 2021.

From December 2020 to August 2021, insiders sold 15,183,340 shares, amounting to $4.2 billion. The stock sales were transacted at share prices between $227 and $370. The vast majority of the shares were sold by Ernest Garcia II, an early investor in the company and father of CEO Ernest Garcia III. All his sales occurred on shares received via stock options. Others making sales included directors, legal counsel, C-suite executives, and other key employees.

Cracks began to show after the insider sales. In its Q1 2022 quarterly call, the company cited lower sales volume and rising interest rates for a decrease in its margin. In addition, Carvana reported lower profit per unit, saying that shipping costs and refunds were the culprits.

Then in May of this year, the company announced it would lay off 2,500  employees -- for which CEO Garcia III apologized. Interestingly, Carvana had nearly doubled its head count from 10,400  in 2020 to over 21,000  by the end of 2021.

Since the insider sales, the stock is down over 90% to under $26. Company insiders may have seen the writing on the wall.

What are insiders saying now?

The insider sales in question seemed to have happened during a perfect storm for the company, which concluded with an incredible run-up in the stock. After the precipitous drop in Carvana's stock price, insiders may now see value.

For instance, since May 17, insiders have purchased 2,239,008 shares at prices between $39.14 and $21.18. Most insiders buying shares, including Ernest Garcia II, also sold shares before the stock's fall from grace.

Insider transactions can give investors a good starting point for stock ideas but might not tell the whole story. Though recent insider buying may indicate good times ahead, you may want to follow the company's fundamentals before jumping in.