Carvana’s stock surges as company predicts strong core profit and retail sales

Shares of Carvana saw a significant increase in after-hours trading on Thursday as the online used-car retailer projected a surprising growth in retail sales and core profit for the current quarter. This boost comes at a time when rising interest rates are leading consumers to seek value in the second-hand car market instead of purchasing new vehicles.

Carvana, known for its unique approach to selling cars online, has witnessed a remarkable surge in its stock price, with an astounding 65% increase this year following an 11-fold rise in the previous year. This surge is expected to result in a staggering $5 billion addition to its market capitalization, which stood at $17.6 billion as of the previous day’s close.

The company is optimistic about the second quarter, anticipating a sequential uptick in adjusted core profit and retail unit growth, despite analysts predicting a 2.6% decline in retail sales from the previous year. In the first quarter of this year, Carvana reported revenue of $3.06 billion, surpassing analysts’ expectations of $2.89 billion.

According to Douglas Arthur, an analyst at Huber Research Partners, Carvana’s revenue surpassed expectations by a substantial margin while managing to maintain stable expenses, resulting in a significant upside surprise for investors. The company’s adjusted earnings before interest, tax, depreciation, and amortization in the first quarter reached $235 million, surpassing analyst expectations of $135.9 million.

Carvana also reported a first-quarter profit of $49 million, surpassing analysts’ estimates of $31.2 million. Market research firm Cox Automotive noted a 9% increase in the total inventory of unsold used vehicles in the United States, reaching 2.27 million units in March compared to the previous year.

In contrast to Carvana’s positive performance, its competitor CarMax fell short of analysts’ expectations for fourth-quarter results recently, indicating potential challenges in meeting long-term vehicle sales targets. This highlights the dynamic nature of the automotive industry and the importance of understanding market trends to navigate effectively in the sector.