Breaking News
Investing Pro 0
Free Webinar - Crude Oil Trading 2023 | Thursday, February 9, 2023 | 01:00PM PST Enroll Now

Carvana Stock Is Causing Pain With Hedge Funds Set to Feel the Worst

Stock Markets Nov 25, 2022 11:54AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
JPM
-0.70%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CVNA
+6.22%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

(Bloomberg) -- The spectacular plunge of Carvana Co (NYSE:CVNA).’s stock price is bringing pain to many investors, but one elite group on Wall Street is feeling it acutely -- hedge funds. 

The online used-car dealer, which has seen its shares fall 97% in the last 12 months, was considered a hedge-fund darling, and for good reason. Collectively, these actively managed funds still own more than a quarter of the company’s shares, according to Bloomberg data. 

Carvana’s tumbling fortunes represent just one among many growth investments that have gone awry for hedge funds this year, providing investors a rare glimpse into how the closely held firms have fared during the intense market selloff. Still, the sheer magnitude of Carvana’s rout stands out, threatening to put a sizable dent in their portfolio valuations. 

“The company was burning cash flow at an alarming rate even before used car prices started declining,” said Ivana Delevska, chief investment officer at SPEAR Invest. “Now with their underlying market deteriorating, Carvana is facing liquidity issues and will requires significant balance sheet restructuring.”

Some have already opted to cut their losses and exit. Earlier this year, Tiger Global Management and D1 Capital Partners bailed on the company. Since D1’s disclosed exit in May the stock has sunk about 80%. 

Carvana shares were up 0.5% at 11:20 a.m. in New York after tumbling 5.1% to $7.71 as the market opened on Friday. Its all-time closing high touched in August last year was $370.10.

About 15 months back, Carvana’s downfall was tough to predict. The company, whose technology allows people to buy their used cars from the comfort of their couch, was a pandemic winner. Investors flush with cash rushed into stocks and ideas that made it easier to conduct business without ever stepping outside the home. 

But the tables turned this year, with liquidity getting tighter, inflation soaring and the Federal Reserve aggressively raising interest rates, the shares of unprofitable businesses have taken the biggest hits. Investors are now looking for stability and value in the face of a looming recession and have been quick to shun growth stocks. For Carvana, the realities of its business have also changed drastically.  

During the pandemic prices of used cars rose to stratospheric heights as new-vehicle production stalled due to supply issues. This year, prices started ratcheting down rapidly as shortages eased, putting pressure on Carvana’s margins. At the same time, demand has cooled with consumers getting squeezed by high inflation and rising rates. 

Earlier this month Carvana reported third-quarter results that fell short of analysts’ expectations. Chief Executive Officer Ernie Garcia said that “cars are extremely expensive, and they’re extremely sensitive to interest rates.”  

Wall Street analysts, who have also started to sound the alarm, are seeing little hope for a quick turnaround.

JPMorgan (NYSE:JPM) analyst Rajat Gupta said there’s no reason to buy neutral-rated Caravana shares currently. “Even when the industry bottoms out, we don’t see a V-shaped recovery in the industry, particularly given challenging supply dynamics in the medium term for one to five-year old cars and negative equity risk, along with Carvana’s increasing debt burden,” he wrote in a note dated Nov. 22.  

Spruce House Investment Management LLC, FPR Partners LLC, 683 Capital Management LLC, Point72 Asset Management LP and KPS Global Asset Management UK Ltd are the hedge funds with the largest positions in the company as of Sept. 30, according to data compiled by Bloomberg. 

©2022 Bloomberg L.P.

 

Carvana Stock Is Causing Pain With Hedge Funds Set to Feel the Worst
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email