Why Carvana Stock Tumbled Today
Key Points
Carvana continued to report strong growth in the third quarter.
Guidance indicated that vehicle sales could decline sequentially.
There are signs in the industry that auto loan delinquencies are rising.
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Shares of Carvana (NYSE: CVNA) were heading lower today as disappointing guidance overcame better-than-expected results in its third-quarter earnings report.
The report also comes as investors have been spooked by rising auto delinquencies and the bankruptcy of two major suppliers in the auto parts industry, leading to broader concerns about credit in the industry.
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As a result, the stock was down 9.6% at 10:19 a.m. ET.
Image source: Carvana.
Playing the expectations game
Carvana's third-quarter results were undeniably strong. Retail units sold rose 44% to 155,942, and revenue jumped 55% to $5.65 billion, which trounced estimates at $5.1 billion.
Retail vehicle gross profit per unit came down by 1.2% to $3,456, a sign that the company may be facing pricing pressure. Gross profit from wholesale, which is a smaller part of the business, fell 6.9% to $866.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose from $429 million to $637 million, and earnings per share were $1.03, up from $0.64. After adjustments for a change in the value of its root warrants, earnings per share were $1.50, ahead of the consensus at $1.32.
What's next for Carvana
Despite the strong Q3 results, investors weren't impressed with the fourth-quarter guidance.
For the current quarter, Carvana expects retail units sold of 150,000 or more and adjusted EBITDA above its previous range of $2 billion-$2.2 billion.
After 155,941 retail vehicles were wold in the quarter, investors seemed worried that the company might be heading toward a sequential decline.
Overall, the report doesn't indicate any red flags. Carvana is expensive, so high expectations are baked into the stock.
Investors should keep an eye on the broader issues in the auto industry, but for now, Carvana still seems to be on a solid growth path.
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Jeremy Bowman has positions in Carvana. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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