Shares of Carvana (NASDAQ:CVNA) have fallen by more than 95% year-to-date, leading to a steady stream of insiders lining up to buy the dip. The decline in CVNA stock has been led by falling used car prices and lowered consumer spending, which has been detrimentally affected by consistent inflation.
In the first half of November, the Manheim Used Vehicle Value Index, which measures used car prices, rose by 0.4% month-over-month (MOM). However, prices are still down 13.7% year-over-year (YOY). Meanwhile, the University of Michigan’s Consumer Sentiment Index fell by 5.2% MOM, bringing the total YOY decline to 15.7%. November’s reading of 56.8 is still near all-time lows since the index was created in the 1940s.
The current readings don’t add up well for CVNA stock. However, a stock’s value is based on the value of future cash flows. The flurry of recent insider buys may signal the insiders believe the future is looking up.
CVNA Stock: Insiders Are Buying the Dip
On Nov. 21, Chief Product Officer Daniel Gill purchased 133,000 shares at an average price of $7.62 per share. Gill now owns a total of 263,415 shares. The next day, President, Special Projects Thomas Taira purchased 35,000 shares at an average price of $6.86 per share. Following the purchase, Taira now owns a total of 77,518 shares. Furthermore, both purchases were not transacted via a prearranged 10b5-1 plan.
Taira’s purchase was his second of the month. On Nov. 11, he reported purchasing 10,000 shares at an average price of $11.13 per share. Three other insiders have purchased CVNA this month, including directors Ira Platt and Gregory Sullivan. In fact, no insider has sold shares of Carvana on the open market since March 1.
In the past year, insiders have purchased 14.08 million shares and have sold 8.73 million shares. That adds up to a total net activity of 5.35 million shares purchased, implying a bullish insider stance.
The flux of insider buys hasn’t stopped Bank of America from cutting its price target to $10 from $43. Analyst Nat Schindler believes that the used vehicle seller will likely run out of cash by the end of 2023, explaining:
“The company now has $477mn in cash (including restricted), and inventory of $2.6bn, which is far outweighed by its LT notes payable at $6.6bn.”
Schindler added that a cash infusion could be on the table, possibly from the Garcia family, but that its impossible to predict. He also noted that Moody’s recently downgraded Carvana’s outlook to negative from stable.
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.