Shares of online used car dealer Carvana Co. (CVNA) were recently downgraded by a Wedbush analyst to Neutral from Outperform. Moreover, JMP Securities' analysts reduced CVNA's price target from $70.00 to $45.00.

On the other hand, on September 29, 2022, Levi & Korsinsky, LLP notified CVNA's investors of a class action securities lawsuit. This lawsuit aims to recover losses on behalf of CVNA's investors adversely affected by alleged securities fraud between May 6, 2020, and June 24, 2022.

CVNA has lost 48.9% over the past month to close the last trading session at $13.38. It has lost 94.2% year-to-date and 95.5% over the past year. The stock closed its previous trading session at its 52-week low of $12.90.

Here is what could shape CVNA's performance in the near term:

Bleak Bottom Line

CVNA's net sales and operating revenues came in at $3.88 billion for the second quarter that ended June 30, 2022, up 16.4% year-over-year. However, its gross profit came in at $396 million, down 28.3% year-over-year.

Also, its net loss came in at $238 million compared to an income of $22 million, while its loss per share came in at $2.35 compared to an EPS of $0.26 in the year-ago period.

Mixed Valuations

CVNA's forward EV/Sales of 0.60x is 42.6% lower than the industry average of 1.05x. Its forward Price/Sales of 0.09x is 88.3% lower than the industry average of 0.81x. However, its forward Price/Book of 28.70x is 1,114.6% higher than the industry average of 2.36x.

Poor Profitability Margins

CVNA's trailing-12-month gross profit margin of 11.87% is 67.4% lower than the industry average of 36.42%. Its trailing-12-month negative EBITDA and net income margins of 4.77% and 4.24% are lower than the industry averages of 11.16% and 5.62%, respectively.

In addition, CVNA's trailing-12-month ROCE, ROTC, and ROTA of negative 131.42%, 7.92%, and 5.89%, compared with the industry averages of 14.76%, 6.79%, and 5.14%, respectively.

POWR Ratings Reflect Bleak Prospects

CVNA has an overall rating of F, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CVNA has an F grade for Quality, consistent with its lower-than-industry profitability margins.

The stock has an F grade for Stability, in sync with its beta of 2.71. Also, it has a C grade for Value, consistent with its mixed valuation multiples.

In the 65-stock Internet industry, CVNA is ranked last. The industry is rated F.

Click here for the additional POWR Ratings for CVNA (Growth, Momentum, and Sentiment).

View all the top stocks in the Internet industry here.

Bottom Line

The company’s bottom line declined significantly in the last reported quarter. CVNA's EPS is estimated to decrease 400% year-over-year to negative $1.90 for the quarter ending September 2022. Moreover, its EPS is expected to decline 210.5% per annum for the next five years.

Given the stock's recent downgrades and below-par profitability, CVNA might be best avoided now.

How Does Carvana Co. (CVNA) Stack Up Against its Peers?

While CVNA has an overall POWR Rating of F, one might consider looking at its industry peers, trivago N.V. (TRVG), Expedia Group, Inc. (EXPE), and Yelp Inc. (YELP), which have an overall B (Buy) rating.

CVNA shares were trading at $14.31 per share on Tuesday morning, up $0.93 (+6.95%). Year-to-date, CVNA has declined -93.83%, versus a -18.59% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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