Carvana stock price has soared after plunging to a low of $148 last month as concerns about Donald Trump’s tariffs jumped. CVNA has jumped to $257 on Friday, its highest level since February 18, and 75% above its lowest level this year, and 7,820% above the lowest point in 2023. Will the stock keep rising after earnings?
Carvana earnings ahead
Carvana has done well in the past few weeks as Donald Trump’s tariffs continue. Analysts believe that the company will be one of the top beneficiaries of the trade war as it boosts demand for second-hand vehicles. That’s because the new tariffs are expected to make new vehicles more expensive by between $1,000 and $10,000.
Cavana’s business has been doing well in the past few years as demand for its vehicles jumped and as the company continued to prioritize profitability over growth. It also sorted its debt issue that wanted to kill it.
The annual revenues have jumped from $5.5 billion in 2020 to over $13.6 billion last year. It also managed to make a small profit of about $210 million.
The most recent results showed that Carvana’s business continued doing well in the fourth quarter. It sold 114,379 vehicles in the fourth quarter, a 50% increase from those it sold a year earlier.
Its quarterly revenue jumped by 46% to $3.55 billion, while its operating income jumped to a record $260 million.
Wall Street analysts expect the upcoming numbers to show that Carvana’s sales growth surged by 30.7% to $4 billion. The most optimistic analyst predicts that the company’s revenue will hit a record $4.2 billion.
Carvana’s profitability is expected to keep growing as well. The average estimate is that its earnings per share rose from 23 cents to 75 cents last quarter.
In the last earnings release, the management hinted that the company’s growth will continue accelerating this year if conditions allow.
Carvana valuation concerns
The main concern about Carvana is that its business is highly overvalued as it has a market cap of over $55 billion.
SeekingAlpha data shows that it has a forward price-to-earnings ratio of 81, much higher than the sector median of 15. Its non-GAAP PE ratio of 73 is also higher than the sector median of 14.
The best way to look at this is to compare it with other vehicle retailers in the US. CarMax, the largest used-car retailer in the US has a market cap of over $10 billion, while CarGurus has $3.5 billion and AutoNation has $6 billion. Lithia Motors is valued at over $8 billion.
These numbers mean that Carvana is bigger than the biggest firms in the vehicle retail industry. Analysts justify the valuation to the fact that Carvana is the fastest-growing companies in the sector.
Carvana stock price technical analysis
CVNA stock price chart | Source: TradingView
The weekly chart shows that the CVNA share price has bounced back ahead of its earnings. It has risen in the last two straight weeks, as it remains above all moving averages, a sign that bulls are in control.
Carvana stock price has formed patterns that send mixed signals to its performance after earnings. On the negative side, it has formed a head and shoulders pattern, a popular bearish reversal signal.
It has also formed a cup and handle pattern, which often leads to a continuation over time. Therefore, the stock will likely retreat after the earnings. However, a move above the head section of $291 will point to more gains, potentially to the psychological point at $300. A drop below the support at $225 will point to more downside towards $200.
Read more: JPM raises Carvana stock target: how high could CVNA go in 2025?
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