Carvana Co. (NYSE:CVNA): When Will It Breakeven?

By
Simply Wall St
Published
March 24, 2021
NYSE:CVNA

With the business potentially at an important milestone, we thought we'd take a closer look at Carvana Co.'s (NYSE:CVNA) future prospects. Carvana Co., together with its subsidiaries, operates an e-commerce platform for buying and selling used cars in the United States. On 31 December 2020, the US$49b market-cap company posted a loss of US$171m for its most recent financial year. The most pressing concern for investors is Carvana's path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.

View our latest analysis for Carvana

Consensus from 23 of the American Specialty Retail analysts is that Carvana is on the verge of breakeven. They anticipate the company to incur a final loss in 2022, before generating positive profits of US$152m in 2023. The company is therefore projected to breakeven around 2 years from now. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 51%, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.

earnings-per-share-growth
NYSE:CVNA Earnings Per Share Growth March 24th 2021

Given this is a high-level overview, we won’t go into details of Carvana's upcoming projects, but, bear in mind that by and large a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we would like to bring into light with Carvana is its debt-to-equity ratio of 153%. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Carvana, so if you are interested in understanding the company at a deeper level, take a look at Carvana's company page on Simply Wall St. We've also compiled a list of pertinent factors you should further research:

  1. Valuation: What is Carvana worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Carvana is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Carvana’s board and the CEO’s background.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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