In the midst of the global pandemic, the common perception is that e-commerce is flourishing while the automotive industry clearly is not. But where does that leave online used-car dealer Carvana (NYSE:CVNA) stock and its stockholders?
That’s a fair question as Carvana bridges an uneasy gap between two apparently very different niches. Or, are they really so different after all? Perhaps Carvana is the perfect solution for car buying amid shelter-in-place orders.
Maybe it’s even possible that Carvana represents the future of car shopping. Are Carvana stockholders actually ahead of the curve, then?
That proposition, and Carvana stock itself, are certainly worth considering.
Carvana Stock Is an Indirect E-Commerce Play
Few people would place Carvana stock on top of their list of e-commerce investments. Yet, the company’s application of online shopping to the automotive market represents a worthy opportunity.
Stay-at-home mandates have made it not just convenient, but in some cases necessary, to make purchases online. And with auto sales declining by 53% and used car prices falling 12% in April, the automotive industry has to make drastic changes in order to adapt to the “new normal.”
Because of the spread of the novel coronavirus, expect shoppers to want to do practically everything online. Any part of the buying cycle that can be done remotely, ought to be done that way if possible.
And Carvana has practically every step of the process covered. The Carvana shopping experience enables visitors to browse through vehicles, viewing them from multiple angles. They can then get pre-qualified for financing, secure an estimate for a trade-in and arrange for delivery or pickup.
Carvana even offers to “bring your car right to your driveway with touchless delivery to keep you safe.” This demonstrates that the company is responsive to shifting customer demands during a time of social distancing.
So, you don’t have to think of Carvana stock as an automotive investment. If it makes you feel better, you can consider it an indirect e-commerce play, or even a coronavirus stock.
Shares Are on the Road to Recovery
There’s no point in trying to conceal the rough ride that Carvana stockholders experienced in late February and much of March. The share price tumbled from over $100 to just $30.
This clearly was an overreaction, as shareholders who didn’t panic have already recovered most of their losses. Clear-minded investors who appreciated Carvana’s forward-thinking business model had no reason to dump their shares.
Automobile sales for Carvana, not surprisingly, have followed the same trajectory as the stock price. In other words, they declined sharply in March but have improved since then. Carvana CEO Ernie Garcia provides some percentages to back this up:
“We began to see significant reductions in demand in the back half of March with a sales trough in early April at approximately 30% reduction in sales year-over-year. From there, we have consistently improved week after week, with sales in the most recent weeks being up about 20% to 30% year-over-year.”
An investor who sees the glass as half empty would focus on the 30% reduction in sales, but that’s in the rear-view mirror now. Carvana stock is in recovery mode and the company is making serious progress.
Further facilitating this recovery is Carvana’s recent $600 million stock offering. This should help to provide capital inflow and thereby strengthen the company’s fiscal position.
The Bottom Line
Carvana is a company that has one foot in the automotive industry and the other foot in e-commerce. But really, there’s no need to classify or pigeonhole Carvana stock.
Instead, comfortably own the shares, knowing that consumer preferences in the post-pandemic world will continue to favor Carvana’s innovative business model.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.