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Why Carvana Stock Is Skyrocketing Today

By Chris Neiger - Aug 5, 2022 at 11:48AM

Key Points

  • The online car seller missed analysts' consensus estimates for revenue and earnings.
  • Investors drove the stock up as the company made efforts to cut costs. 

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Investors appeared overly eager about the stock despite a lackluster quarter.

What happened 

Shares of the online car-buying company Carvana (CVNA -11.62%) were soaring today after the company released its second-quarter financial results. Although the company missed Wall Street consensus estimates for both its top and bottom lines, investors appeared to focus on its progress in cutting costs and narrowing its losses.

Carvana's shares were up by 32.3% as of 11:15 a.m. ET on Friday. 

So what 

Revenue increased by 16% from the year-ago quarter to $3.8 billion, but fell below analysts' average estimate of $3.9 billion. The company's adjusted loss of $2.35 per share in the quarter was also worse than Wall Street's expectation of a loss of $1.79, and below the company's earnings per share of $0.26 in the year-ago quarter. 

Cars in a parking lot.

Image source: Getty Images.

But investors ignored the company's top- and bottom-line misses and instead focused on the company's cost-cutting progress. 

To that end, Carvana's selling, general, and administrative costs fell by about 1% sequentially to $721 million. Part of that drop came as the company cut about 12% of its workforce in May.  

Investors were also happy to see the company's net losses narrow sequentially to $439 million in the second quarter, down from $506 million in the first quarter.  

And total retail units sold increased 9% year over year to 117,564. The company is also making more money from each car that it sells, compared to the prior quarter. Gross profit per unit increased to $3,368, up from $2,833 in the previous quarter. 

Now what 

Carvana's massive share price gains are a bit excessive today. Sure, the company is slowly making changes that are moving it toward profitability, but it clearly isn't there yet. 

Add to this high inflation, rising interest rates, and an expensive automotive market (not to mention a potential economic slowdown), and it's not hard to imagine that Carvana's share price run-up today probably isn't sustainable.

  

Chris Neiger 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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Stocks Mentioned

Carvana Stock Quote
Carvana
CVNA
$42.30 (-11.62%) $-5.56

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