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Carvana: Vroom Puts This Into Perspective

Jun. 10, 2020 9:16 AM ETCarvana Co. (CVNA)VRM54 Comments

Summary

  • Vroom is debt-free, growing fast, and being priced at approximately 2.0x sales.
  • In comparison, Carvana is fully weighted down by its highly restrictive balance sheet, slower growth rates than Vroom, and priced at approximately 1.9x.
  • Carvana's shareholder are going to struggle to find a reasonable return in this stock.
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Investment Thesis

Carvana (NYSE:CVNA) is an expensive stock in a very competitive market. This has been known for some time, and investors have been willing to give the stock a wide pass.

Meanwhile, Vroom's recent IPO highlights just how expensive Carnava is why this stock should be avoided as it is unjustifiably expensive.

Further, going through Carvana's balance sheet, I question how long before Carvana needs to access capital markets once again?

Having said, I note that the strong momentum in the stock, from shorts being squeezed, is likely to keep the stock rallying here, at least over the very near-term.

Balance Sheet - A Position of Weakness

To say that Caravana's balance sheet has problems is to put things mildly. But even before digging around its balance sheet, we should consider its off-balance sheet entities:

Source: Q1 2020 10-Q

As we can see above, Caranava's off-balance sheet, has about $120 million in liabilities. This is not particularly onerous, particularly compared with a company like Hertz (HTZ). Having said that, Hertz has not been valued anywhere near $8 billion market cap for some time, and to argue that Caravana is not as bad as Hertz is not a compelling enough argument -- Hertz is on its way into potential bankruptcy.

Next, as to Caravana's balance sheet, Caravana has its Senior Notes, which mature in 2023 and amount to just over $600 million. Also, Caravana has drawn its revolver (including its Floor Plan Facility which matures in October 2020), with its total near-term revolver carried on its balance sheet at more than $800 million.

To summarize, Caravana is not operating from a position of flexibility and strength, but quite the opposite.

Capital Dilution -- a Second Take?

Moving on, Caravana has sold shares twice in the last several months, with its latest raise

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