Carvana Co (NYSE: CVNA) is trading down this morning after a Bank of America analyst cited “cash crunch” and warned the stock could ultimately go to “zero”.
Carvana is running out of cash fast
Nat Schindler still only downgraded shares of the online used car retailer to “neutral” because he remains positive on the business model.
Without a “cash infusion”, though, he doesn’t see how Carvana will survive past 2023.
Carvana has been struggling to turn profitable and ~600 million of annual interest expense is burning through cash quickly. Our bear case is simple: without a cash infusion, liquidity will dry up and equity value goes to zero.
Earlier in November, the Tempe-headquartered company said its net loss widened to $508 million in its third financial quarter. Carvana stock is currently trading at less than 3.0% of the price at which it started the year 2022.
Carvana stock could have massive upside too
Carvana is currently operating with less than $500 million in cash on its balance sheet and there’s been no indication of a cash infusion, at least so far.
Nonetheless, if it secures a cash injection either from the Garcia Family or externally, Schindler does agree that the Carvana stock could grow by several folds.
Our bull case assumes it is able to raise capital, keeping liquid long enough to cut expenses and reach profitability. Applying reasonable long-term EBTIDA margins of 13.5% to 2022 revenue, Carvana is trading at only 4x 2022 EV/EBITDA.
For now, though, Moody’s has a “Caa1” rating on Carvana Co that once was a growth stock.
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