Raymond James Is Souring on Carvana (CVNA) Stock

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Online vehicle retailer Carvana (NYSE:CVNA) won the pandemic with its inherently minimal-contact business. However, market experts now question whether CVNA stock can win the post-pandemic cycle of high inflation and high interest rates.

According to a Barron’s report, analysts at Raymond James — led by Mitch Ingles — wrote earlier on Friday that all the “good news seems already reflected in the stock price.” In addition, near-term growth for Carvana faces threats from consumers’ inability to afford cars. While the onset of the Covid-19 crisis led to an accommodative monetary policy, borrowing costs spiked sharply beginning in 2022.

With consumers still struggling from the Federal Reserve’s longstanding battle to curb inflation, Ingles cut his rating of CVNA stock to “underperform” — an equivalent to a sell — from “market perform.” The analyst also stated that investors may adopt a “wait-and-see approach, looking for clear indicators of improved sales growth.”

Compared to the market print, Ingles’ pessimism represents a bold assessment. In the past 52 weeks, CVNA stock gained almost 400%. For context, the mercurial semiconductor juggernaut Nvidia (NASDAQ:NVDA) “only” gained 235%. Sure enough, Carvana also swung up 10% on a year-to-date basis.

Still, the Raymond James report stung, which saw CVNA lose around 6% in the afternoon session.

Winning the Post-Covid Economy Is Another Story for CVNA Stock

During the first years of the Covid-19 crisis, the effectively contactless nature of Carvana’s business wasn’t the only catalyst for CVNA stock. With government officials desperate to avoid catastrophic economic damage, interest rates fell. Between November 2019 through February 2022, the finance rate on new car loans (60-month terms) fell from 5.37% to 4.52%.

However, the dilemma for CVNA stock — and for all big-ticket-item retailers — was the subsequent interest-rate spike. By the latest data from November 2023, the aforementioned finance rate skyrocketed to 8.15%. Combined with blistering inflation — which is improving but still elevated — Carvana may struggle to find viable customers.

Adding to the pressure, Carvana’s distinct “contactless” business model now becomes a liability in the post-pandemic cycle. With consumers seeking the best price possible, they may elect traditional dealerships or even go private party.

Subsequently, Raymond James’ report appears to have ignited bearish wagers against CVNA stock. In Fintel’s options flow screener — which filters exclusively for big block transactions — a high volume of sold calls materialized. At face value (assuming no integration of complex, multi-tiered strategies), sold calls represent wagers that the underlying security will not reach the listed strike price.

However, going bearish may not be easy. Per Fintel, the short interest of CVNA stock stands at nearly 40% of its float. If shares rise for whatever reason, the subsequent act of covering the short position — that is, buying back the stock — will likely spark a positive feedback loop.

Why It Matters

At the moment, analysts rate CVNA stock as a consensus hold. This assessment breaks down as one buy, nine holds and three sells, including the Raymond James rating. Overall, the price target sits at $40.33, implying almost 25% downside risk.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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