What happened
After recording explosive gains in Thursday's trading, Carvana (CVNA -0.36%) stock lost ground in Friday's daily session. The automotive e-commerce company's share price fell 21.3% today, according to data from S&P Global Market Intelligence.
Carvana stock had rocketed higher Thursday after the company said that it was expecting to record more than $50 million in non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) this quarter. But investors and analysts appear to be reassessing the significance of the company's new forecast.
So what
D.A. Davidson analyst Michael Baker published a note on Carvana stock today indicating that promising guidance in the current quarter stems from accounting practices and one-time events. Accordingly, it's not clear that Carvana is actually making significant progress on its path toward profitability.
RBC analyst Brad Erickson also issued new coverage on the stock and took a cautious stance. Erickson noted that statements from Carvana's management about profitably returning to sales growth while also exploring new ways to raise capital were difficult to reconcile given the company's heavy debt load.
Now what
While Carvana's management had previously indicated that it would be EBITDA positive on an adjusted basis this quarter, the new guidance for adjusted EBITDA exceeding $50 million came in significantly ahead of the market's expectations. The company now expects to record an adjusted gross profit per unit above $6,000, while it had previously forecast an adjusted gross profit above $5,000 per unit.
Carvana's second-quarter guidance update certainly seems to be good news, but investors should probably exercise caution with the stock. Even after today's pullback, the company's stock is up roughly 310% year to date, and there are still questions about whether the business will be able to shift into profitability and pay down its debt.
