Carvana Co.’s (NYSE:CVNA) Profit Outlook

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Carvana Co.’s (NYSE:CVNA): Carvana Co., together with its subsidiaries, operates an e-commerce platform for buying and selling used cars in the United States. With the latest financial year loss of -US$67.3m and a trailing-twelve month of -US$86.1m, the US$10b market-cap amplifies its loss by moving further away from its breakeven target. Many investors are wondering the rate at which CVNA will turn a profit, with the big question being “when will the company breakeven?” I’ve put together a brief outline of industry analyst expectations for CVNA, its year of breakeven and its implied growth rate.

See our latest analysis for Carvana

According to the 15 industry analysts covering CVNA, the consensus is breakeven is near. They anticipate the company to incur a final loss in 2020, before generating positive profits of US$117m in 2021. So, CVNA is predicted to breakeven approximately 2 years from now. How fast will CVNA have to grow each year in order to reach the breakeven point by 2021? Working backwards from analyst estimates, it turns out that they expect the company to grow 32% year-on-year, on average, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.

NYSE:CVNA Past and Future Earnings, May 13th 2019
NYSE:CVNA Past and Future Earnings, May 13th 2019

Given this is a high-level overview, I won’t go into details of CVNA’s upcoming projects, though, take into account that by and large a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before I wrap up, there’s one issue worth mentioning. CVNA currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and CVNA has considerably exceeded this. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Next Steps:

There are too many aspects of CVNA to cover in one brief article, but the key fundamentals for the company can all be found in one place – CVNA’s company page on Simply Wall St. I’ve also compiled a list of relevant factors you should further examine:

  1. Valuation: What is CVNA 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 CVNA 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 back ground.
  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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.