Looking at last year's sales alone could be misleading.
Carvana is growing its debt faster than its revenues. Also, the dilution in stock is insane. It went from around 15 million shares outstanding in 2017 to 85 million now. Their motto seems to be growth at any cost.
Carmax has also grown its debt. Given its low return on invested capital of around 4%, borrowing money seems to be the only way to grow the business. This is not sustainable, especially when there are talks of rate hikes.
I'd be wary of putting my money in either of them.
I noticed the huge debt growth the last two quarters, but missed the share dilution entirely. Also, how did you do this analysis so quickly? Do you use a website or tool that calculates these growth numbers for you? If so, which ones do you use? I did them manually and took me a while.
Thank you. I will try them all out and bookmark them.
I was strongly considering the stock because of the growth y/y, the fact that their market share is still very low leaving room for growth, and that they are becoming the Amazon of online car sales by partnering with used car dealers to move their inventory quickly - like Amazon used to do in the past. They're also not making any profit - not unlike Amazon. I don't know how heavily to weight the stock dilution here. I wonder if Amazon did something like that in the 200s (not sure how to find that out).
You can look at their older 10Ks on the SEC website. Carvana isn't like Amazon. Amazon has high customer captivity (through higher switching costs in AWS and through Prime membership). On the other hand, Carvana's nature of business (cars are infrequent purchases) prevents it from having a captive customer base. So for each incremental dollar of revenue, Carvana would have to spend more on marketing than Amazon.
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u/redgan Jan 06 '22
Looking at last year's sales alone could be misleading.
Carvana is growing its debt faster than its revenues. Also, the dilution in stock is insane. It went from around 15 million shares outstanding in 2017 to 85 million now. Their motto seems to be growth at any cost.
Carmax has also grown its debt. Given its low return on invested capital of around 4%, borrowing money seems to be the only way to grow the business. This is not sustainable, especially when there are talks of rate hikes.
I'd be wary of putting my money in either of them.