Carvana (NYSE:CVNA) is in full focus following a massive purchase by Luxor Capital. The pandemic beneficiary is having a difficult year, as shares of CVNA stock are down more than 85% year-to-date (YTD).
Meanwhile, CBS reports that car repossessions are surging, marking a concerning signal for the used car market. Subprime repossessions are now up 11% since 2020. On top of that, even borrowers with excellent credit scores are starting to default on their car loan payments. Repossessions among borrowers with excellent credit scores have doubled to 4% compared to 2020.
Barron’s writer Lisa Beilfuss Popeo attributes this to inflation and rising interest rates. Families across the nation are now having to budget more money for necessities, such as food and gas. In response, the Federal Reserve has hiked interest rates to combat inflation.
Rising rates may have the effect of lowering demand for used vehicles. When rates rise, the interest rates on loans rises as well, which makes purchase prices less attractive. This in turn may lower used car prices if demand falls.
Still, used car prices remain elevated. The Manheim Used Vehicle Value Index sits at 219.9 as of June, down 1.3% month-over-month but still up 9.7% year-over-year.
Despite these factors, Luxor reported it has increased its CVNA stock position by 645%. Let’s get into the details.
Luxor Capital Purchases CVNA Stock
As of July 5, Luxor owns 6.19 million shares of CVNA stock, which is 5.36 million shares more than when the fund reported its first-quarter 13F positions. Carvana is now Luxor’s eighth-largest position with a 2.32% portfolio allocation. Excluding options, it is the fund’s third-largest position.
Luxor had more than $7 billion in assets under management (AUM) as of Q1. The fund owns a total of 104 positions, although its top ten positions account for 85.27% of its entire 13F portfolio. Furthermore, the firm operates as a short- to medium-term investor and has an average holding period of 4.16 quarters.
Luxor’s purchase follows a sustained trend of heavy insider buying. Since March, Carvana insiders have purchased shares of the company on 18 separate occasions. A large number of these purchases are attributed to 10% owner Ernest Garcia II, and his son, Carvana CEO Ernest Garcia III. In addition, no CVNA insider has sold shares on the open market since March.
On the date of publication, Eddie Pan did not hold (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.
