Carvana (NASDAQ:CVNA) stock rose 6% overnight on news of insider buying. Indeed, the troubled online car business got a boost thanks to its chief product officer.
Chief Product Officer Daniel Gill bought $1 million in stock at about $7.60 per share. The stock opened Nov. 23 at $7.32, representing a market capitalization of about $1.2 billion.
At its height in August 2021, Carvana traded at $360 per share.
Why Buy CVNA Stock Now?
It’s not uncommon for insiders to buy after a company stock collapses. Often, it’s a way of showing confidence in the future. And it’s often a bullish signal.
But Carvana is in deep trouble. Carvana posted a loss and a negative outlook early this month.
Carvana promised to revolutionize the used car business with a simple buying process, national TV branding and lots built to look like vending machines. But buyers faced the same problems at Carvana as at other car lots. Carvana’s licenses have been suspended or threatened in several states. Anecdotally, when my family needed a used car in 2019, we found Carvana prices were much higher than at conventional lots.
Carvana is closely held, with 85% of the voting shares held by CEO Ernie Garcia and his father, who founded a chain of car lots called DriveTime. When times were good, DriveTime sold cars to Carvana to keep inventories high. Carvana was also able to sell its loans to raise cash.
But now used car prices have fallen, along with the value of low-interest-rate loans. Competitors like AutoNation (NYSE:AN) are down by 50%. But Carvana has nearly been wiped out after losing $283 million in the last quarter on sales that were down from a year earlier.
What Happens Next?
Carvana is now laying off workers at its Phoenix headquarters, but only one of 17 analysts following the stock has given up and put out a “sell” rating, according to TipRanks.
I put out the sell light on Carvana back in February. I don’t like to be right, but I’m not buying the dip, either.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack.
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