What happened
Shares of the online car-selling platform Carvana (CVNA 5.33%) were rising this morning after a Citi analyst initiated coverage of the stock yesterday.
The analyst believes that demand for online car shopping will continue to grow and that Carvana could benefit as it does. As a result, Carvana's shares were up by 9.9% as of 10:50 a.m. ET.
So what
Citi analyst Ronald Josey started coverage of Carvana with a neutral rating and a price target of $5.50.
Investors latched on to Josey's positive comments about the company, including his belief that Carvana's stock could continue to grow.
"In a more normalized market environment for new and used vehicles, we believe Carvana is well positioned to continue to generate share gains given the highly fragmented retail category for used cars that remains underpenetrated online," Josey said.
Just as importantly, the analyst thinks that Carvana's leadership will negotiate with creditors to avoid bankruptcy -- which is a real concern -- but he also said that investors should keep an eye on any new developments.
Now what
While Carvana's stock is rising higher today, investors should still be very cautious before considering buying shares.
Carvana is still burning through cash, and even if the company avoids bankruptcy, there's no guarantee that it will be able to turn its business around.
Investors would be better off waiting on the sidelines to see if its leadership can right the ship instead of jumping on board and betting on the company too early.
