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Carvana's stock is up more than 160% this year — its founder remains bullish

Brian Sozzi
·Editor-at-Large
·3-min read

It has taken years of convincing, but Carvana (CVNA) is finally starting to drive itself right into the portfolios of investors.

All it took was a pandemic that has fundamentally changed how people shop for cars and tighter execution by Carvana throughout its organization. The result: The first indications that a capital intensive, unique business model could be profitable and a stock price up more than 160% year-to-date.

“We’re a seven-year-old company. Three or four years ago we were at a negative 20% EBITDA margin, and then negative 16%, and then negative 9% and negative 6%. We announced that this quarter we expect to be approximately breakeven from an EBITDA [earnings before interest, taxes and depreciation] perspective. The scale in the business is really showing up in that incredibly rapid leverage,” said Carvana founder and CEO Ernie Garcia — fresh off opening his 26th car vending machine in Detroit on Thursday — on Yahoo Finance’s The First Trade.

Carvana shares spiked nearly 8% on Garcia’s comments.

The company said on Sept. 22 it achieved record sales, gross profit per unit and operating margins in the third quarter as customers avoided dealerships in favor of Carvana’s direct delivery model. For the first time, Carvana disclosed it will be breakeven.

Now a long skeptical Wall Street is tripping over themselves to come out bullishly on Carvana’s stock. Goldman Sachs upgraded its rating on Carvana’s stock to Buy immediately after the third quarter sales disclosure.

Analysts at Needham penned a report headlined “The bear case has nearly been obliterated.”

“CVNA's positive pre-announcement not only highlighted its continued sterling execution in the face of the COVID crisis but separately, (and most importantly), should all but eliminate the bear case of not being able to make money as growth continues to accelerate,” crowed Needham’s Brad Erickson.

An eight story car vending machine, operated by the online used car dealer Carvana, that dispenses purchased cars to customers is seen in Huntington Beach, California on August 16, 2019. - The fully automated, special coin-operated Car Vending Machine holds up to 30 vehicles and the company says it offers a novel pick-up experience for cars purchased on their website. (Photo by Mark RALSTON / AFP)        (Photo credit should read MARK RALSTON/AFP via Getty Images)
An eight story car vending machine, operated by the online used car dealer Carvana, that dispenses purchased cars to customers is seen in Huntington Beach, California on August 16, 2019. - The fully automated, special coin-operated Car Vending Machine holds up to 30 vehicles and the company says it offers a novel pick-up experience for cars purchased on their website. (Photo by Mark RALSTON / AFP) (Photo credit should read MARK RALSTON/AFP via Getty Images)

The wild card heading into 2021 on Carvana is whether consumers will stick with it as COVID-19 slowly recedes into the background and traditional dealerships up their safety protocols.

Says Garcia, “I think what the pandemic has done is it has accelerated customers’ willingness to try new things. When they try new things they often like new things. We think that shift is a material shift that is likely to persist. Then we also would note we have been growing at roughly triple digit rates since inception in 2013 by delivering great experiences to customers and them telling their friends about it. I think there is a lot of inherent growth in the business that is independent of the changes driven by the pandemic.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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