Why Carvana Stock Was Stuck at a red Light Today


What happened

Investors threw Carvana (CVNA -1.94%) stock into reverse on Friday, trading the auto retailer’s shares down by almost 2%. On a day when the S&P 500 index motored slightly higher, there was a solid underlying reason for Carvana’s decline — namely, the latest quarterly results published by a rival.

So what

Said rival is fellow retailer CarMax, which on Thursday before market open unveiled its third-quarter results. Unfortunately for the company, its investors, and the broader auto retail space, these disappointed the market. CarMax recorded notable year-over-year declines in unit sales, revenue, and earnings.

That hardly bodes well for other companies that earn money by slinging the metal. CarMax attributed its slides to macroeconomic headwinds that have put the cost of vehicles out of reach of many consumers.

As an auto dealer, Carvana basically drives on the same road as its peer, so it was hardly a surprise that investors sold out of it in sympathy. We can say the same for other automotive stocks more generally, as a clutch of them also saw uncomfortable price declines on Friday.

Now what

Ultimately, though, with that sub-2% fall, Carvana’s shares experienced more of a tap on the brakes than a screeching halt and violent reversal.

Investors in this space have, after all, become accustomed to discouraging news about the car retail segment. Even though inflation has come down, it’s still having a limiting effect on consumer behavior, while uncertainty about the future of the economy continues to weigh on the minds of many potential car buyers. Given that situation, we shouldn’t expect a sudden lurch forward for Carvana or any of its peers in the near future.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CarMax. The Motley Fool has a disclosure policy.

Source link

Leave A Reply

Your email address will not be published.