The prices of used cars have jumped of late, causing a decline in sales for most used car sellers. According to the car shopping app CoPilot, which tracks dealership prices nationwide, sales of used cars less than 10 years old were down 27% last month compared to March 2021.
Supply chain disruptions and rising COVID-19 cases in China have dampened the production of new cars, making them non-existent in some locations. CoPilot CEO and founder Pat Ryan said, “With nearly empty new car lots across the country, dealers have been holding prices of newer used cars high."
Carvana Co. (CVNA), CarMax, Inc. (KMX), and KAR Auction Services, Inc. (KAR) have suffered a significant decline in sales owing to surging used car prices. This has caused their stocks to plummet in price over the past few months. Because the environment is not expected to improve anytime soon, we think these stocks are best avoided now.
Carvana Co. (CVNA)
CVNA in Phoenix, Ariz., and its subsidiaries, function as an e-commerce platform for buying and selling used cars in the United States. The company's platform permits customers to research and identify a vehicle, inspect it using the company's 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up from their desktop or mobile devices.
For the first quarter, ending March 31, 2022, CVNA's gross profit decreased 11.8% year-over-year to $298 million. Its net loss increased 622.2% from its year-ago value to $260 million, while its net loss per share increased 528.3% from its prior-year quarter to $2.89.
Analysts expect CVNA's EPS to decline 70.9% and to remain negative in the third quarter, ending Sept. 30, 2022. The company's shares have plunged 60.1% in price year-to-date and 68% over the past six months.
CVNA's POWR ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CVNA is rated an F grade for Quality and Stability and a D for Growth. Within the F-rated Internet industry, it is ranked #69 of 71 stocks.
To see additional POWR Ratings for Value, Sentiment, and Momentum for CVNA, click here.
CarMax, Inc. (KMX)
KMX in Richmond, Va., functions as a retailer of used vehicles in the United States and its subsidiaries. The company has two operational segments: CarMax Sales Operations, and CarMax Auto Finance. It provides customers a range of brands and models of used vehicles, including domestic, imported, and luxury vehicles, hybrid, and electric vehicles.
KMX's interest expense increased 32.3% year-over-year to $26.85 million during the fourth quarter, ending Feb. 28, 2022. Its net earnings declined 23.9% from its year-ago value to $159.84 million, while its EPS decreased 22.8% from its prior-year quarter to $0.98. Its net cash used in operating activities amounted to $2.55 billion for its fiscal year ending Feb. 28, 2022. In addition, KMX sold a total of 194,318 used vehicle units during the fourth quarter, down 5.2% from 204,928 used vehicle units a year ago.
The $1.61 consensus EPS estimate represents a 38.6% year-over-year decline for the first quarter, ending May 31, 2022. The $8.02 billion revenue estimate represents a 6% decline in the third quarter, ending Nov. 30, 2022. The stock has declined 28.5% in price year-to-date and 32.8% over the past six months.
KMX's weak fundamentals are reflected in its POWR ratings. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. The stock also has an F grade for Sentiment and a D for Growth and Quality. In the B-rated Auto Dealers & Rentals industry, it is ranked #23 of 24 stocks.
In addition to the POWR Ratings grades I have just highlighted, one can see the KMX rating for Momentum, Value, and Stability here.
KAR Auction Services, Inc. (KAR)
Along with its subsidiaries, KAR in Carmel, Ind., delivers used vehicle auctions and related vehicle remarketing services for the automotive industry in the United States, Europe, Canada, Mexico, and the United Kingdom. The company operates through two segments, ADESA Auctions, and AFC.
In February, KAR agreed to allow Caravana to acquire the company's ADESA U.S. physical auction business. The all-cash transaction is valued at $2.2 billion and includes all auction sales, operations, and staff at 56 ADESA U.S. vehicle logistics centers and exclusive use of the ADESA.com marketplace in the U.S. The agreement is closely positioned with KAR's digital strategy and will enable KAR to emphasize its portfolio of industry-leading digital marketplaces. Proceeds of the transaction will be used to reduce KAR's corporate debt.
During the fourth quarter, ending Dec.31, 2021, KAR's interest expense increased 5.9% year-over-year to $32.30 million, while its loss per share amounted to $0.04. The company's net cash used for investing activities increased 273.1% year-over-year to $1.22 billion for its fiscal year ending Dec. 31, 2021.
Analysts expect KAR's revenue to decline 4% year-over-year to $558.14 million for its first quarter, ending March 31, 2022. The $0.13 consensus EPS estimate represents a 70.8% year-over-year decline for the first quarter, ending March 31, 2022. The company's shares have declined 6% in price over the past month.
KAR's poor prospects are also apparent in its POWR Ratings. It has a D grade for Stability. KAR is ranked #19 in the Auto Dealers & Rentals industry. Click here to see the additional POWR Ratings for KAR (Growth, Quality, Value, Momentum, and Sentiment).
CVNA shares were trading at $81.23 per share on Thursday afternoon, down $11.27 (-12.18%). Year-to-date, CVNA has declined -64.96%, versus a -6.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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