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Carvana Shares Due for Potential Pullback, Says Morgan Stanley
Morgan Stanley analyst Adam Jonas has downgraded shares of Carvana to underweight from equal weight, citing the need for a potential pullback. Despite raising the price target to $35 from $12, Jonas believes there is still a 20% downside from Wednesday's closing price. While Jonas acknowledges the company's recent positive adjusted EBITDA and addressing of short-term liquidity concerns, he still questions Carvana's ability to sustain its progress. Ongoing challenges in the used car consumer base and the long-term viability of the company's business model are factors that contribute to Jonas' concerns. Piper Sandler and RBC have also lowered their rating on the stock, emphasizing that improvements have already been priced into shares. Despite this news, Carvana shares trading 0.4% higher on Thursday before the bell, and the stock has experienced an impressive 823% increase in 2023.
Conclusion: Potential Impact on New Business
The recent downgrading of Carvana shares by Morgan Stanley, along with the lowered ratings from Piper Sandler and RBC, indicates a potential pullback and raises concerns about the long-term viability of the company's business model. This news could have implications for new businesses operating in the used car industry.
1. Increased caution from investors
The downgrades and concerns expressed by analysts might make investors more cautious about allocating their funds to new businesses in the used car sector. The skepticism surrounding Carvana's ability to sustain its progress and the challenges faced by the used car consumer base may lead investors to exercise more due diligence when considering investing in similar ventures.
2. Need for distinct and sustainable business models
The concerns raised by analysts highlight the importance of having a distinct and sustainable business model in the used car industry. New businesses entering this market will need to address ongoing challenges and differentiate themselves by offering unique value propositions that can withstand potential market drawbacks.
3. Pricing in improvements and managing expectations
The fact that the improvements Carvana has made are already priced into its shares serves as a reminder for new businesses to manage expectations and communicate their progress effectively. Demonstrating tangible results, addressing liquidity concerns, and managing market expectations can help new ventures avoid potential pullbacks and maintain investor confidence.
In summary, the downgrading of Carvana shares and the concerns raised by prominent analysts highlight the need for caution and a well-defined business model when entering the used car industry. However, new businesses can use this news as an opportunity to learn from Carvana's challenges and position themselves as strong contenders in the market by addressing long-term viability concerns, managing investor expectations, and offering unique value propositions.
Article First Published at: https://www.cnbc.com/2023/07/27/sell-carvana-after-the-stocks-monster-move-this-year-morgan-stanley-says.html