Carvana (NYSE: CVNA) stock price popped to $9 after the company published strong financial results. The shares jumped by over 25% after the company’s revenue beat the consensus estimate. Still, shares of the fallen angel have crashed by over 97% from their all-time high.
Carvana earnings download
In a report, Carvana said that it sold 79,240 cars in the first quarter, which was about 25% lower than what it sold in the same quarter in 2022. This decline happened because of reduced advertising, inventories,, and the rising interest rates. Also, the company decided to focus on profitability and not growth at all costs.
Carvana’s revenue came in at $2.6 billion, which was lower than what it made in the same quarter in 2021. The company also cited ADESA as one of its key pillars since it is helping it save cash in transport. In the last quarter, the company saved an average $200 per vehicle in transportation.
Despite the strong results, Carvana faces significant challenges ahead. The biggest challenge is its huge debt load, which is affecting its business. Most of this debt came with the acquisition of ADESA in 2022. In a statement, the company said that it had $3.5 billion in liquidity, made up of $1.5 billion in cash and $2 billion in unpledged real estate.
Last week, Bloomberg reported that Carvana’s creditors had agreed to swap its debt for equity. As part of the deal, some bondholders will allow the firm to pay some of its interest with additional debt. Another approach is to allow the company to move its existing unsecured positions into a new first-lien debt. That plan is expected to save Carvana $1 billion in interest per year.
Therefore, there is a likelihood that Carvana will avoid going bankrupt as most analysts were expecting in the near term. Also, the company could benefit if the Fed pauses its rate hikes.
Carvana stock price forecast
CVNA chart by TradingView
The 4H chart shows that the CVNA share price dropped to the key support at $6.52 this month. This was an important level since it coincided with the lowest point on March 15. It seems like the shares have formed an inverted cup and shoulders pattern, which is usually a bearish sign.
Therefore, while Carvana is making progress fundamentally, I believe that it has more downside going forward. This view will be confirmed if the shares manage to move below the key support level at $6.72. If this happens, the next level to watch will be at $5.
However, a clear move above the upper side of the inverted C&H pattern at $10 will signal that there are still more buyers in the market.
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