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Carvana Co.'s (NYSE:CVNA) Shift From Loss To Profit

Simply Wall St

Carvana Co.'s (NYSE:CVNA): Carvana Co., together with its subsidiaries, operates an e-commerce platform for buying and selling used cars in the United States. The US$13b market-cap posted a loss in its most recent financial year of -US$67.3m and a latest trailing-twelve-month loss of -US$101.4m leading to an even wider gap between loss and breakeven. The most pressing concern for investors is CVNA’s path to profitability – when will it breakeven? I’ve put together a brief outline of industry analyst expectations for CVNA, its year of breakeven and its implied growth rate.

View our latest analysis for Carvana

CVNA is bordering on breakeven, according to the 18 Specialty Retail analysts. They expect the company to post a final loss in 2021, before turning a profit of US$121m in 2022. CVNA is therefore projected to breakeven around 3 years from today. How fast will CVNA have to grow each year in order to reach the breakeven point by 2022? Working backwards from analyst estimates, it turns out that they expect the company to grow 63% year-on-year, on average, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

NYSE:CVNA Past and Future Earnings, November 3rd 2019

Underlying developments driving CVNA’s growth isn’t the focus of this broad overview, however, keep in mind that by and large a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before I wrap up, there’s one issue worth mentioning. CVNA currently has a debt-to-equity ratio of 195%. Typically, debt shouldn’t exceed 40% of your equity, which in CVNA’s case, it has significantly overshot. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on CVNA, so if you are interested in understanding the company at a deeper level, take a look at CVNA’s company page on Simply Wall St. I’ve also put together a list of relevant factors you should further examine:

  1. Valuation: What is CVNA 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 CVNA 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 back ground.
  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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.