As online used-car dealer, Carvana Co.’s (NYSE: CVNA) moved up 1.11% to $8.21 in pre trading session on Friday as the share price is spiraling out of control, Wall Street analysts are lowering their targets, and they are warning that things could get worse.
Analysts’ average price expectations for the firm struggled to keep up with its astonishing 97% share price decline this year. That changed this month, and in the last week alone, at least three analysts cut their price forecasts and downgraded the company, warning that the worsening economy and the auto dealer’s high debt burden might have even more disastrous effects.
Robert W. Baird analyst Colin Sebastian wrote in a note on Tuesday that In order to reflect a larger possibility of insolvency by 2024 without a quicker decrease in operational expenses and/or access to considerable capital, they are decreasing their price objective from $30 to $7.
The stock’s average price estimates have now fallen roughly 60% from where they were at the end of October and by 94% since the start of the year. Early this month, Carvana announced its third-quarter earnings, setting off the most recent avalanche in both its shares and analyst projections. The company noted a deteriorating economy and declining demand for pre-owned vehicles as the reasons behind the quarterly loss and revenue significantly falling short of Wall Street expectations.
According to Cowen analyst John Blackledge, “we do not see industry headwinds abating in the near term given weakening consumer sentiment and interest rates that will likely remain above previous norms for a prolonged period of time.” He reduced the stock’s recommendation from buy to hold and decreased the price objective from $55 to $10.
A perfect storm has taken Carvana off guard. Used-car demand had a huge increase during the epidemic days when auto industry was suffering from debilitating supply bottlenecks, which caused used-car prices to rise. Prices of used cars have been drastically declining from their high this year as supply chains began to stabilize, reducing the profits of retailers like Carvana.
In the meanwhile, consumers are reluctant to make major purchases due to consistently high inflation and rising borrowing rates, particularly in light of the possibility of a recession. As a result, demand is also suffering.