Carvana share price plunges: will it go bankrupt?

Carvana (NYSE: CVNA) stock price plunged in 2022, making it one of the worst performing tech and consumer discretionary stocks. Shares fell to a low of $8.76, which was its lowest level since 2017. It is down more than 97% from its 2021 high.

The rise and fall of Carvana

Carvana is a leading company in the automotive and technology sectors. The company buys used cars at auction and then lists them on its website and mobile apps. Customers then buy their favorite cars and collect them from one of its vending machines. Most customers opt for the company’s delivery service.

Carvana’s share price has seen a strong bearish trend over the past few months as concerns over the company’s growth persist. On the one hand, with interest rates soaring, car buyers have slowed down their purchases in recent months.

Last week’s results did not help the situation. The company sold 102,570 cars in the third quarter, down 8% from the same period in 2021. Its total revenue fell 3% to $3.38 billion even as ADESA a contributed $193 million. Total gross profit per unit fell to $3,500. Carvana also lowered its forecast.

Analysts are concerned about the Carvana share price. In a note, Morgan Stanley’s Adam Jonas warned that Carvana could go bankrupt. He lowered his stock forecast to $1 or even $0.10 in the worst case. He said:

“As the company continues to take cost-cutting measures, we believe that a deterioration in the used car market combined with a volatile interest rate/funding environment (bonds are trading at a yield of 20%) adds significant risk to the outlook.”

Carvana’s business faces many challenges as the Fed maintains an extremely hawkish tone. In addition, shareholders face a real possibility of stock dilution.

Carvana Share Price Prediction

Carvana share price

The daily chart shows that the CVNA stock price has been on a strong downtrend over the past few months. It broke below the key support at $19.37. The stock managed to move below all moving averages.

The Relative Strength Index (RSI) has broken below the oversold level. Therefore, in the immediate term, stocks are likely to continue lower as sellers target the next key support at $5. A move above the resistance at $10 will invalidate the bearish view.

Karen J. Nelson