Underperforming Carvana Stock Brushes Off Downgrade

The firm added a steep price-target cut to $15 from $50

Deputy Editor
Oct 18, 2022 at 10:33 AM
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Carvana Co (NYSE:CVNA) is up 3.3% to trade at $18.82 at last glance, enjoying the broad-market rally despite a downgrade from Wedbush to "neutral" from "outperform," with a price-target cut all the way to $15 from $50. The analyst cited market conditions, inflated cost structure, and high cash burn, as well as its acquisition of Adesa's physical auction business, which was dubbed "an albatross around its neck." 

On the charts, CVNA isn't at all too far removed from its Oct. 13 nearly five-year low of $17.05. Overhead pressure at the $20 level, which has been an area of support in the summer, has been keeping a tight lid on the shares since earlier this month. Year-to-date, the equity is down a whopping 91.9%. 

Of the 28 analysts in coverage, 18 now carry a tepid "hold" or worse rating. More price-target cuts could be on the way, as analysts' 12-month consensus price target of $50.42 sits at a 167.2% premium to current levels. 

Options traders appear to be viewing recent underperformance as an attractive entry point. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Carvana stock's 50-day call/put volume ratio of 1.60 ranks higher than 94% of readings from the past year, showing calls are being picked up at a much faster-than-usual rate. 

Drilling down to today's options activity, 25,000 calls and 8,750 puts have crossed the tape, or double the volume that's typically seen at this point. The popular contract is the December 20 call, followed by the October 20 call, with positions being opened at both.

It's also worth noting the security's Schaeffer's Volatility Scorecard (SVS) sits at a relatively high 88 out of 100, meaning CVNA has exceeded option traders' volatility expectations during the past year.


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