CNBC’s Jim Cramer warned investors against buying Carvana shares after the company reported worrying quarterly results on Wednesday.
“There is zero tolerance for unprofitable businesses, and Carvana has made it clear that it will take much longer to reach profitability than we thought,” the Mad Money host said.
“Given what we heard last night, I think there are more downsides here, even as I kinda think the long-running story is great. But this is the ‘what you did to me recently’ market and in the near term I expect Karvana, they couldn’t do any Something for you, recently or otherwise.”
Carvana beat expectations on revenue but reported a larger-than-expected loss per share in the last quarter. The online used car retailer also saw its quarterly sales decline for the first time.
Carvana shares fell 10.12% Thursday, hitting a 52-week low earlier today.
Evercore ISI lowered Carvana’s outperformance rating to the next rank of the company’s earnings report.
Kramer said the problem Carvana is facing is rising supply costs in addition to destroying demand, as consumers become unwilling to continue paying higher prices for used cars. He highlighted the destruction of demand last week as a sign that inflation may be at its peak.
“To make matters worse, Carvana has withdrawn its full-year forecasts…Companies are not withdrawing their forecast unless they are genuinely concerned about the future,” Kramer said.
The used-car retailer also said it plans to sell $2 billion in common and preferred stock and that CEO Ernie Garcia and his father plan to buy up to $432 million in common stock.
“Carvana is pursued by liquidity concerns as it provides financing to its clients, then pools those loans into asset-backed securities, and then sells them to investors. Unfortunately, used cash-backed securities have not been selling well lately. When Carvana collects these funds, they remove a huge burden.”
“I don’t know if it was a wise decision,” Cramer said of the CEO’s decision to buy common stock. “But I commend Ernie Garcia for believing in his vision.”
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