Your local car dealership may still be closed because of the COVID-19 pandemic, but online auto retailer Carvana (CVNA) continues to be open for business.
And that dynamic has supercharged Carvana’s sales in recent months — well that and the fact people don’t want to interact with car salespeople for fear of getting sick. After seeing sales fall nearly 30% year-over-year in March and into early April as the pandemic hit fever pitch levels, Carvana’s sales spiked 20% to 30% into May as things settled down just a bit. The sales strength seen in May has continued, Carvana founder and CEO Ernie Garcia tells Yahoo Finance.
“We’re a seven-year-old company. We launched in 2013, since then we’ve more than doubled every year. I think this pandemic was the first time we ever saw sales negative year-over-year early in the pandemic when the whole economy shutdown. But it did rapidly turnaround. We’re a growth company, entering new markets all the time. We opened 100 markets in May. We’ve been bringing our offering nationwide quickly and seen consumer behavior shift in the direction of wanting to check things out online, but things in a safer way. We did see a lot of growth that showed up in late April, into May, and has continued,” Garcia said on The First Trade.
Carvana shares rose about 1% Friday morning.
The current environment couldn’t play anymore into Carvana’s business model, which probably explains why the stock has surged 51% year-to-date, according to Yahoo Finance Premium data. Consumers go online to Carvana, pick out a car and it’s delivered right to their homes. Or, they could visit one of Carvana’s vending machine-like dealerships and pick up the car with little to no human interaction.
It’s a model that just makes sense for the moment, if not for the next 10 years of auto buying.
Carvana is leading the onslaught against traditional car retailing in the U.S. by leveraging a digitally native, data-centric, capital-efficient, verticalized approach that we believe is a more compelling buying experience and should lead to significant value creation over the next several years,” wrote Needham analyst Brad Erickson in a recent note. “While we think financing concerns will remain a persistent overhang, we expect footprint expansion and execution to illuminate how underappreciated the company's gross profit potential is at current levels.”
Erickson has a Buy rating on Carvana. Of the 22 sell-side analysts on Wall Street that cover Carvana, 50% of them rate the stock a Buy.
The one thing perhaps holding the stock back are lingering questions on Carvana’s bottom line. Carvana has yet to turn a profit, but pros think the company could enter the black in 2022.
“We’re a public company, we have to stay away from answering those questions too directly,” Garcia said on 2022 potentially being the year of profits. “We’re growing fast. That growth has cost the company — as a full company we have not made money yet. But we believe that’s on the horizon — we’re not going to give you an exact date.”