How much risk can you tolerate? If the answer is “a lot,” then I invite you to take a second look at online car retailer Carvana (NYSE:CVNA). Sure, the company has serious problems, but the CVNA stock price seems to already reflect Carvana’s financial issues. Besides, to Carvana’s credit, the company poses a threat to traditional, outdated car-shopping paradigms.
In spectacular fashion, Carvana devolved from a Wall Street darling to a fallen angel and became a poster child of growth stocks gone wrong. Now, the company’s shareholders are left to pick up the pieces or just cut and run.
However, before you bail on Carvana, I encourage you to consider some reasons to stay in the trade. Audacious traders might even choose to pick up some shares, as long as they maintain a very modest position size.
Potential Bankruptcy May Already Be Priced Into CVNA Stock
Having declined from $360 to less than $10, CVNA stock has done a lot of damage over the past couple of years. The share-price carnage has been so severe that Carvana’s bankruptcy — which hasn’t actually occurred, as of this writing — is likely already priced in.
Don’t get the wrong message here. Carvana has plenty of problems. The company’s fourth-quarter 2022 retail units sold declined 23% year over year (YOY). Also, Carvana’s revenue decreased 24%, and the company’s net earnings loss widened from $182 million to $1.441 billion.
So, it’s risky to invest in Carvana. Another problem is Carvana’s debt load, which CNBC estimated to be $9 billion. Yet, there’s good news as Carvana announced a plan to restructure its debt. Citing The Financial Times, CNBC suggested that the restructuring efforts could reduce Carvana’s “unsecured bond debt by $1.3 billion.”
It’s conceivable, then, that Carvana can chip away at its debt burden this year. Just maybe, the company and CVNA stock have hit rock bottom and can only get better from here.
Carvana Represents the Future of Car Shopping
While the headlines sensationalize Carvana’s financial issues, investors shouldn’t ignore the company’s innovative spirit. In the digital age, Carvana represents a major threat to old-fashioned car-buying modalities.
If the future belongs to millennials and Zoomers, then Carvana could increase its share of the automotive-buying market over the coming years. This won’t happen overnight, but there could be small victories along the way. For example, Carvana recently celebrated the Illinois State Senate’s unanimous vote to allow “home car delivery by automotive dealers.”
That’s good news for Carvana, which helps people buy vehicles online and arrange for home delivery. The company is also pioneering a relatively new car-buying modality: vending machines. Impressively, Carvana just established “its newest Car Vending Machine near Long Island, located in Garden City, New York.” It’s eight stories tall and will undoubtedly garner attention, and hopefully some vehicle-sales revenue, for Carvana.
Take a Small Share Position in CVNA Stock, If You Dare
Carvana could still go bankrupt, so exercise caution in your share position size. That said, it could be worthwhile to hold a few Carvana shares in anticipation of a turnaround.
If Carvana can reduce its debt load and capture the attention of millennials and Zoomers with modern car-buying modalities, CVNA stock could double, triple or more. Just be patient, celebrate little victories and prepare for failure, which is always a possibility.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.