What happened

Carvana (CVNA 1.69%) shareholders lost ground to the market in early trading on Monday. The automotive retailer's stock was down 13% by 1:15 p.m. ET, compared to a 0.6% decline in the S&P 500. That slump added to massive declines for the shares, which are now down over 95% so far in 2022.

Monday's decline was sparked by news of further weakening demand for online auto sales.

So what

Carvana said in a Friday filing with the Securities and Exchange Commission (SEC) that it is cutting a further 1,500 jobs from its business. This move follows prior rounds of cost cuts in 2022 that have all been aimed at shoring up its finances as demand shrinks for used cars.

Carvana said in early November that sales volumes shrank by 8%, in part because soaring interest rates have raised the effective monthly payment for most car shoppers. Net losses ballooned in the selling period that ended in late September, with pre-tax losses landing at $508 million, compared to $68 million a year earlier.

Carvana's latest round of layoffs suggests that conditions deteriorated even more over the last few weeks, as the company now requires more cuts to move toward its goal of pushing gross profit per vehicle back above $4,000. That core metric fell to $3,500 last quarter and will likely decline again in Q4, management said in early November.

Now what

Investors might be tempted by the over 90% discount in Carvana's stock today, especially since the company appears to be winning market share through tough economic conditions. The auto industry likely shrank by between 10% and 15% last quarter, executives estimate, which puts Carvana's 8% volume decline in a better light.

However, the company hasn't demonstrated that it can generate sustainable profits during this cyclical downturn. Its small revenue base means losses will likely look worse in late 2022 and through early 2023 as well. That's why investors should watch this stock from the sidelines for concrete signs of a rebound before concluding that the shares are a screaming buy.