The stock of Carvana Co (NYSE:CVNA, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $323.42 per share and the market cap of $26.2 billion, Carvana Co stock is believed to be significantly overvalued. GF Value for Carvana Co is shown in the chart below.
Because Carvana Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 15.1% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Carvana Co has a cash-to-debt ratio of 0.14, which is worse than 82% of the companies in the industry of Retail - Cyclical. The overall financial strength of Carvana Co is 4 out of 10, which indicates that the financial strength of Carvana Co is poor. This is the debt and cash of Carvana Co over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Carvana Co has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $6.7 billion and loss of $2.05 a share. Its operating margin of -3.77% worse than 76% of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks Carvana Co’s profitability as poor. This is the revenue and net income of Carvana Co over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Carvana Co is 15.1%, which ranks better than 86% of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth is 25.4%, which ranks better than 76% of the companies in the industry of Retail - Cyclical.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Carvana Co’s ROIC was -10.77, while its WACC came in at 17.05. The historical ROIC vs WACC comparison of Carvana Co is shown below:
Overall, the stock of Carvana Co (NYSE:CVNA, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 76% of the companies in the industry of Retail - Cyclical. To learn more about Carvana Co stock, you can check out its 30-year Financials here.
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