business

Insiders buy Carvana (CVNA) shares. Here’s why.


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carvana (NASDAQ:CVNA) the stock rose 6% overnight on news of insider buying. Indeed, the struggling online automotive sector has been given a boost thanks to its product manager.

Chief Product Officer Daniel Gill bought $1 million worth of stock at around $7.60 per share. The stock opened Nov. 23 at $7.32, representing a market capitalization of around $1.2 billion.

At its peak in August 2021, Carvana traded at $360 per share.

Why buy CVNA shares now?

It is not uncommon for insiders to buy after a company’s stock crashes. It is often a way of showing confidence in the future. And this is often a bullish signal.

But Carvana is in big trouble. Carvana posted a loss and a negative outlook at the start of the month.

Carvana promised to revolutionize the used car industry with a simple buying process, a national TV brand and lots built to look like vending machines. But buyers encountered the same problems in Carvana as in other car lots. Carvana’s licenses have been suspended or threatened in several states. Anecdotally, when my family needed a used car in 2019, we found that Carvana prices were much higher than on conventional lots.

Carvana is tightly owned, with 85% of the voting shares held by CEO Ernie Garcia and his father, who founded a chain of car lots called DriveTime. When times were good, DriveTime would sell cars to Carvana to keep inventory high. Carvana was also able to sell its loans to raise funds.

But now used car prices have fallen, along with the value of low-interest loans. Competitors like AutoNation (NYSE:A) are down 50%. But Carvana was nearly wiped out after losing $283 million last quarter on declining sales from a year earlier.

What happens next?

Carvana is now laying off workers at its Phoenix headquarters, but only one of 17 analysts who track the stock has given up and issued a “sell” rating, according to TipRanks.

I turned off the sell light on Carvana in February. I don’t like being right, but I don’t buy the dip either.

As of the date of publication, Dana Blankenhorn does not hold any positions at the companies mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

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