Carvana (NYSE:CVNA), an early pandemic winner, is experiencing great volatility today on news that it has closed a key acquisition and plans to lay off 12% of its workers. Although shares are up slightly today, CVNA stock is nearly 90% off its 52-week high.
What an incredible decline.
Unfortunately, Carvana is one of a number of Covid-19 winners that struggled meaningfully in 2022. This market is unfriendly to high-growth stocks, particularly those that may be cutting forward estimates.
Why? As interest rates rise, investors are becoming increasingly focused on quality over top-line numbers. Additionally, Carvana has been among the more unique beneficiaries of inflation, particularly within the used car market. Rising rates will (hopefully) bring down these prices and bring sanity back to the market.
That said, it’s not just market jitters affecting CVNA stock today. Let’s dive into the layoff news weighing on shares.
CVNA Stock in Focus on Layoff Plan
CEO Ernie Garcia announced today in a company-wide email that Carvana would be pursuing an aggressive cost-cutting program. The company expects to lay off 12% of its workforce, or approximately 2,500 positions. These positions were mostly on the operations side, suggesting the company believes slow sales growth may be on the horizon.
Recent analyst downgrades for CVNA stock have focused on slowing growth as well as the company’s debt load. Unfavorable terms for junk bonds issued by Carvana to fund the company’s acquisition of Adesa, a car auction company, has raised eyebrows.
In other words, Carvana is growing, but not in an organic fashion. Taking on more debt at a time like this, with high interest rates, is something analysts don’t seem to think is too prudent.
Overall, I’m not very bullish on CVNA stock. Perhaps shares will find a bottom at some point, although it is not clear when that may be.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
