Shares of Carvana (NYSE:CVNA) stock are accelerating higher by over 30% today, just days after reaching a new 52-week low of $6.50. That comes as the Manheim Used Vehicle Value Index, which measures the price of used cars, fell by 2.2% in October, bringing the year-over-year (YOY) decline to 10.6%. Furthermore, Manheim estimated that used retail sales declined 9% month-over-month (MOM) and 13% YOY.
If that wasn’t bad enough, long-time CVNA stock bull Adam Jonas of Morgan Stanley lowered his price target to $68 from $75 last month. In addition, Jonas set his bear case price target to as low as $1 and his bull case price target to $70.
“Following KMX’s weak fiscal 2Q and continue Manheim weakness, we have lowered our CVNA numbers to allow for continued weakness in the retail and wholesale used car market,” said Jonas. “3Q results will be important to determine the timing and magnitude of future potential equity dilution.”
Still, that hasn’t stopped two insiders of the company from making a combined $1+ million insider purchase. Let’s get into the details.
Insiders Are Buying CVNA Stock
On Nov. 7, Director Ira Platt purchased 50,000 shares of CVNA at an average price of $7.40 per share. The shares were purchased through a trust of which Platt is the trustee and had a combined value of $370,000.
On the same day, Director Michael Maroone made an even bigger purchase. Maroone picked up 100,000 shares at an average price of $8.61. He purchased these shares directly, which had a value of $861,000. These transactions were the first insider purchases since June 15, when Chief Product Officer Daniel Gill acquired 94,000 shares at an average price of $21.77.
So, why exactly did the directors buy? For starters, CVNA is trading near its all-time low. On top of that, CVNA currently carries a minuscule price-to-sales (P/S) ratio of just 0.06x. That’s below Carvana’s five-year average P/S ratio of 1.37x and miles away from the all-time high P/S ratio of 4.1x seen last August. For comparison, the S&P 500 currently carries a P/S ratio of 2.27x. Meanwhile, some CVNA investors are speculating that the company could be bought out at a higher price.
Carvana isn’t out of the woods just yet. Rising interest rates have curbed used vehicle affordability and have contributed to declining prices. However, insider purchases and today’s lower-than-expected consumer price index (CPI) figure has investors hoping that better days are on the way.
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.
