Could Carvana Be a Great Company, but a Bad Investment?

Sometimes, a company’s business model can be both consumer-friendly AND bad for its business.

But it doesn’t happen often.

The reason it’s so rare is most companies have figured out how to charge enough to cover all their costs and turn a profit.

I don’t think Carvana is one of those companies.

Case in point…

I am in the market for a car.

But first, I had to sell my current car.

So I did the usual stuff.

I went to a couple of dealers to get their offers for my car based on a trade-in… but it’s never fun talking with car dealers who are less than transparent.

Next, I went online and got a couple of quotes from places like Kelley Blue Book and CarGurus.

My last stop was Carvana.

Carvana came in at 30% above the other offers.

Easy decision.

I sold them the car.

Then I got to thinking…

What does Carvana know that other dealers (some of whom have been in the business for more than 30 years) don’t?

Was it betting that I would buy one of its cars?

I considered it, but Carvana’s selling prices were around 5% higher than its competitors’.

Is it counting on the generation of buyers who love the convenience of buying off a screen, pressing a button and having the car dropped off on their doorstep, thereby avoiding the dealer two-step altogether?

Or is Carvana in it for the long game?

Is it using borrowed money to build a business model that is so customer-friendly that it will make its money back over time with loyalty?

Well, I’m not sure the company will be around long enough to find out.

It is hemorrhaging cash… probably to folks like me.

Its last quarter showed slowing sales, and the share price got hammered even more.

At this time a year ago, the shares were over $140. They’re at around $9 today. See the chart below.

Carvana: Good For Consumers, Bad for Business

Meanwhile, CarGurus just reported better-than-expected numbers, and its shares are rallying. Other established auto dealers are seeing stability in their share prices too.



The market is usually right. And right now, the market is saying that based on economic performance and share price, Carvana’s business model is not winning – at least not for the shareholders! Avoid CVNA as an investment, but consider selling your car to them if you’re in the market like me.

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