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When Will Carvana Co. (NYSE:CVNA) Become Profitable?

·2 min read

We feel now is a pretty good time to analyse Carvana Co.'s (NYSE:CVNA) business as it appears the company may be on the cusp of a considerable accomplishment. Carvana Co., together with its subsidiaries, operates an e-commerce platform for buying and selling used cars in the United States. With the latest financial year loss of US$171m and a trailing-twelve-month loss of US$147m, the US$57b market-cap company alleviated its loss by moving closer towards its target of breakeven. As path to profitability is the topic on Carvana's investors mind, we've decided to gauge market sentiment. Below we will provide a high-level summary of the industry analysts’ expectations for the company.

Check out our latest analysis for Carvana

Carvana is bordering on breakeven, according to the 25 American Specialty Retail analysts. They expect the company to post a final loss in 2022, before turning a profit of US$119m in 2023. So, the company is predicted to breakeven approximately 2 years from now. How fast will the company have to grow each year in order to reach the breakeven point by 2023? Working backwards from analyst estimates, it turns out that they expect the company to grow 78% year-on-year, on average, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

Underlying developments driving Carvana's growth isn’t the focus of this broad overview, though, bear in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there’s one issue worth mentioning. Carvana currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Carvana, so if you are interested in understanding the company at a deeper level, take a look at Carvana's company page on Simply Wall St. We've also compiled a list of pertinent factors you should further research:

  1. Valuation: What is Carvana worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Carvana is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Carvana’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.