CNBC’s Jim Cramer warned investors not to buy shares of caravan after the company reported worrying quarterly results on Wednesday.
“There is zero tolerance for unprofitable companies and Carvana has just made it clear that it will take much longer for them to reach profitability than we thought,” said the “bad moneysaid the host.
“Given what we heard last night, I think there are more downsides here, although I think the long-term story is great. But this is a ‘what have you done for me lately’ market and in the short term, I expect Carvana, they couldn’t do anything for you lately or otherwise.”
caravan exceeded revenue expectations, but reported a larger-than-expected loss per share for its latest quarter. The online used car retailer also saw its quarterly sales decline for the first time.
Shares of Carvana fell 10.12% on Thursday, hitting a new 52-week low earlier in the day.
Evercore ISI degraded Carvana top performance level after the company’s earnings report.
Cramer said one problem Carvana faces is higher supply costs and demand destruction, as consumers are unwilling to continue paying higher prices for used vehicles. The highlighted demand destruction last week as a sign that inflation may be peaking.
“To make matters worse, Carvana actually put out their forecast for the full year…Companies don’t put out their forecasts unless they’re really nervous about the future,” Cramer 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 has been beset by liquidity concerns because it offers financing to its customers, then packages those loans into asset-backed securities, which it then sells to investors. Unfortunately, used-car-backed bonds haven’t been selling very well. well lately… So when Carvana raises this money, it eliminates a significant excess,” Cramer said.
Cramer said of the CEO’s decision to buy common stock: “I don’t know if it’s a wise decision. But I commend Ernie Garcia for believing in his own vision.”
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