Analyst Targets 33% Downside For Carvana Stock

Morgan Stanley sees an upcoming drop in used car sales

Managing Editor
Jan 14, 2019 at 12:08 PM
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The shares of Carvana Co (NYSE:CVNA) are down 6.2% to trade at $34.47 today, after Morgan Stanley initiated coverage on the car-selling platform with an "underweight" rating and price target of $23. The analyst in coverage predicts a decline in used car sales this year, and believes there's limited growth potential ahead for the company. 

The $23 price target is the lowest among the analysts in coverage, and is a 33% discount to the security's current perch. Carvana stock has shed 52% since its Sept. 12 high of $72.50, and while the shares have gained 5.4% already in 2019, the rally appears to have lost steam at their 40-day moving average, a trendline of resistance that acted as support earlier in the year.

Daily Stock Chart CVNA

Short sellers have been piling on. Short interest rose by 18.9% in the last two reporting periods to a record high 18.35 million shares. This represents 52% of CVNA's total available float, and more than seven days' worth of pent-up trading power, at the security's the average daily trading volume.

Options traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) are more bearish than usual toward the stock. CVNA's 50-day call/put volume ratio of 1.32 is 4 percentage points from an annual high, meaning puts have been bought to open relative to calls at a quicker-than-usual clip

Traders looking to speculate on Carvana stock's short-term price action should consider options. The equity's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 88 out of a possible 100, meaning the stock has handily exceeded options traders' volatility expectations in the past year -- a boon for would-be premium buyers..


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