Major Investment Shifts Rock Carvana as Stock Soars: A Tale of Two Portfolio Managers
In a significant shake-up of investment positions, two major institutional investors have dramatically reduced their stakes in Carvana Co. (NYSE: CVNA), even as the online car retailer’s stock continues its remarkable ascent in 2024.
Los Angeles Capital Management LLC made waves by slashing its Carvana holdings by a striking 80.8% in the third quarter. The firm now holds just 9,215 shares, valued at $1.6 million.
This move comes on the heels of another substantial reduction by CAS Investment Partners, LLC, which trimmed its position by 77,300 shares, though it maintains a significant 6.4 million share stake in the company.
Given Carvana’s stellar performance in 2024, these portfolio adjustments are cause for concern. The stock has skyrocketed nearly 400% year-to-date, currently trading at $243.69. This surge suggests these institutional investors might be taking profits rather than losing confidence in the company’s future.
Behind the Numbers
The timing of these moves is particularly interesting. Carvana recently reported impressive quarterly results, surpassing market expectations.
- The earnings per share exceeded the estimates by $0.41.
- The company generated revenue of $3.66 billion, exceeding the projected amount of $3.47 billion.
- The quarterly revenue surged by 31.8% in comparison to the previous year.
Market Response and Analyst Sentiment
Wall Street’s response to Carvana’s performance has been notably positive. JMP Securities recently raised their price target to an ambitious $320 while maintaining their “market outperform” rating. However, the overall analyst consensus remains cautiously optimistic, with a “Hold” rating and a price target of $217.71.
Insider Activity Adds Another Layer
To add to the intrigue, company insiders have been active sellers.
- Major shareholder Ernest C. Garcia II sold 100,000 shares at $155.51 each.
- CFO Mark W. Jenkins disposed of 20,000 shares at $241.78 per share.
- Total insider sales in the last quarter reached an impressive $468.5 million.
What This Means for Investors
The contrasting moves by different market players paint a complex picture:
- Institutional Rebalancing: Large investors might be rebalancing portfolios after Carvana’s massive gains, rather than expressing negative sentiment.
- Strong Fundamentals: Despite the selling pressure, Carvana’s business metrics remain robust, with growing revenue and improved profitability.
- Market Valuation: With a market cap of $31.32 billion, some analysts suggest the stock might be overvalued, potentially explaining the institutional profit-taking.
Looking Ahead
Carvana’s journey from a low of $29.84 to recent highs above $240 shows the company’s resilience and market acceptance of its business model. The e-commerce platform for used cars has successfully weathered earlier skepticism about its sustainability.
However, investors should note some key metrics.
- A high debt-to-equity ratio of 18.99
- The beta value of 3.37 signifies notable fluctuations.
- The current ratio stands at 3.25, indicating strong short-term liquidity.
The Bottom Line
While major investors reduce their stakes, Carvana’s fundamental story remains compelling. The company’s ability to exceed earnings expectations and grow revenue significantly suggests its business model is working. However, the substantial insider selling and institutional reductions might signal that the stock’s remarkable run could face near-term headwinds.
For potential investors, these mixed signals suggest a need for careful consideration. While Carvana’s growth story remains intact, the current valuation and recent institutional selling might warrant a wait-and-see approach or a more measured entry strategy.