Why Is Carvana (CVNA) Stock Plunging Today?

  • Carvana (NYSE:CVNA) sunk more than 20%, vastly underperforming the market.
  • This move came following very disappointing earnings from rival CarMax (NYSE:KMX).
  • Additionally, reports about the used car market peaking have investors concerned.
CVNA stock - Why Is Carvana (CVNA) Stock Plunging Today?

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One of today’s biggest decliners in the overall market is Carvana (NYSE:CVNA). Shares of CVNA stock are now down more than 20% in this afternoon’s session. This move follows a rather disappointing earnings report from fellow used-car retailer CarMax (NYSE:KMX), which is down a whopping 24% at the time of writing.

In CarMax’s earnings report, the company reported a rather wide revenue and earnings miss. Analysts were expecting earnings of $1.39 per share on revenues of $8.54 billion. However, the company noted that it brought in only 79 cents per share, and $8.14 billion in revenue.

The car retailer did report slight revenue growth, but it was much less than what experts anticipated. Additionally, CarMax’s profit declined more than 50%, a rather heavy drop, particularly during one of the hottest periods we’ve seen in the auto market.

The company’s commentary around the reasons for this miss appear to be focused mostly on inflation and economic concerns. Demand ticked lower, as the company’s revenue growth was driven by price increases only.

Here’s what this may mean for Carvana moving forward.

CVNA Stock Plunges Following CarMax Earnings

The used car market doesn’t appear to be what it once was. Despite surging prices and trade-in values for car buyers, a certain demographic has been pushed out of the market. With interest rates rising, affordability for car purchases has declined. Accordingly, investors appear to expect similarly poor results from Carvana when it reports.

A range of reports citing a slowdown in the used car market are circulating. Prices are finally falling in this segment, which could be good for upcoming inflation readings. However, for car marketplaces such as Carvana (who buy and sell cars), this could mean worse margins on the horizon for their existing inventory.

Just how bad things will get remains to be seen. That said, with CarMax’s extremely outsized miss, there’s little hope Carvana can really do any better right now.

From here, it will be interesting to see how these car dealers perform. Some may view this incredible plunge today as a buying opportunity. That said, as we’re seeing in the market right now, risk appetite is dwindling.

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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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