CVNA

Publicly traded companies mentioned herein: Carvana Co (CVNA), Hertz Global Holdings Inc (HTZ), Vroom Inc (VRM)

Highlights

The presenter is short shares of Carvana Co (CVNA), a stock he previously owned on the thesis that a 100% digital consumer-facing strategy with lower asset intensity could be a better mousetrap for capturing used car transactions and then originating and selling loans (which is how CVNA makes money). His view on that thesis changed during the highly stimulated post-COVID period when the business didn’t scale properly despite supply chain issues causing a strong used car market. The subsequent acquisition of ADESA, which he describes as a down payment on land to park and eventually recondition cars, was a signal that management likely came to the same realization, and added confidence that CVNA is not materially differentiated and likely won’t generate better financial performance than the incumbents it was hoping to disrupt. At this point, he feels the stock is overvalued due to a short squeeze and the market extrapolating positive recent trends that will not persist. As unit growth decelerates and gross profit per unit (GPU) deteriorates over the next 12 months, there could be major downside from the current $122 share price, with the presenter’s fair value around $50 per share.