10 reasons to buy Carvana and never sell

Carvana (NYSE: CVNA) has not only been one of the most fashionable titles in the automotive sector, but also one of the most explosive. S & P 50026% gain with a 582% increase in stock prices since its IPO in April 2017. Some investors may want to take profits, and other investors may fear after its initial ramp-up. But here are 10 reasons why you can consider buying Carvana now and never sell it.

1. Growth in the proven business figure

One of the reasons you buy stocks without ever selling them is that they have a compelling growth story. We will see below the story of Carvana's long-term growth, but it is clear that the company is already flourishing. Retail units sold jumped 95% in the second quarter, resulting in a 108% increase in revenues. And no, it was not a marvel: it was the 22nd consecutive quarter of triple-digit revenue growth. Sales growth has been so lucrative that Carvana sold almost as many cars in the second quarter as during the whole of 2017.

2. Proven growth in net income

It's not just retail sales and retail sales that are growing; Gross profit per unit (GPU) jumped from $ 1,002 to $ 3,175 in the second quarter, as the company strives to improve its operations and profitability. The increase in the number of GPUs in the second quarter occurred at all levels of the transaction: protection of the guarantee and financing services, reduction in the average number of days of sale from 66 to 61, and acquisition of additional vehicles provided by the customers (more on this in a moment). What is almost as impressive as the increase in the number of GPUs in the second quarter is the steady improvement of the metric.

3. A proven entry strategy

Management has shown that it has a game book to penetrate the markets successfully and does so with increased efficiency. In fact, it has recorded its two most important quarters of its history in terms of market openings in the first half of 2019. This has propelled its total market from 85 at the end of 2018 to 137 by the end of the second quarter of 2019. Although the opening of a car vending machine is different (and more expensive), Carvana has demonstrated its ability to penetrate new markets through a less capitalistic delivery strategy that fits into its logistics network. and its existing marketing program.

These first three reasons to own Carvana prove that his business is already thriving, but let's take a closer look at why the used car retailer is unique and developing so well.

4. A market ready for disruption

Most of us have gone through the process of buying a car: it's exhausting, tedious and not much fun. Of the society Introduction to Carvana According to the presentation, 81% of consumers do not like it and 8% of consumers judge car salesmen very reliable. With its transparent, fast and easy online purchasing platform and distribution network, the used car dealer has created a much better customer experience. With over 34,000 customer ratings up to June 30, 2019, Carvana.com received a rating of 4.7 out of 5 stars, and 96% of them would recommend to a friend – but these are not your bad scores of typical dealers!

5. A better mousetrap

Even if a business locates a sector ready for disruption, it needs a better mousetrap. In my opinion, Carvana's answer can be summed up in two aspects: the process and the experience. Its process is much simpler than a conventional dealer. By reviewing options and online contracts at your convenience, and with the ability to sign electronically, you can take your time or complete a transaction in as little as 10 minutes. In addition, Carvana offers overnight delivery in many markets, a seven-day money-back guarantee to dispel fears about online shopping and a selection of more than 18,000 vehicles (compared to individual retailers who often only have about 100 vehicles).

6. Differentiation

Carvana's unique experience goes hand in hand with its best mouse trap to create better brand awareness and word of mouth marketing. It's hard to differentiate yourself from other dealers, but Carvana does it with its auto vending machines. Buyers use an oversized coin to operate a nine-storey vending machine to deliver their vehicle. In the social media era, it offers buyers a fun and shareable experience (the new "word of mouth") that sets Carvana apart. For example, after opening a vending machine in Nashville, its market penetration more than doubled in the first two quarters.

Carvana's three previous reasons for ownership explain why it's doing so well with its auto vending machines, its more enjoyable user experience, and its fast and seamless online shopping platform. But where will this race lead investors and how many roads remain invisible?

7. market penetration

Investors often lose sight of the growth potential under Carvana's nose. While it is easy to see the evolution of growth as it continues to open new markets at a staggering pace, we forget that the company has not yet exploited its potential in existing markets. At the end of 2018, its largest market, Atlanta, grew by 26% year-on-year in terms of market penetration – and still holds only a 1.94% market share. As you can see in the two charts below, Atlanta still has room to grow unless it suddenly appears on platters, and there are many newer markets on which Carvana has not yet reached the potential shown by Atlanta.

8. Are we here?

Some numbers help highlight the long-term potential. Management has raised an intriguing point about the fracture and the importance of the car dealership market: it is the largest retail sector in the United States with a turnover of more than $ 1 trillion. dollars, while the main retailer holds about 2% of the market. This is nothing compared to other retail markets, where leaders claim a share ranging from 10% to 50%.

While companies such as Carvana are contributing to industry consolidation and / or mergers and the market is getting closer to other retail markets, management estimates that the two largest players could account for 31% and 17% of market sales. , which would represent an annual turnover of 12%. million and 7 million, respectively.

Although this may never happen in the auto dealership sector, the management's goal is to reach 2 million annual sales, which leaves a lot of room for improvement over sales estimates at the end of the year. detail of 2019, which ranged between 167,500 and 172,500 units.

9. New growth opportunities

Carvana is still in the early stages of long-term growth and offers many new opportunities. A fantastic example is its recent trend to buy consumer vehicles even though these consumers were not buying a company vehicle at the time. This sounds boring, but reselling consumer-purchased vehicles is more profitable than reselling auctioned vehicles. And this strategy has taken off: Carvana's consumer-purchased vehicles grew by 232% in the first quarter of 2019, representing 40% of retail units, compared to 24% of all retail units. one year earlier.

The company also has untapped markets in entire geographic areas of the west, northwest, and midwest, as it currently operates primarily along the east and south coast.

10. Long term offsets cyclical activity

The last reason to keep Carvana in the long run is simple: to help offset the notoriously cyclical nature of the activity. As you can see in the graph below, taking light vehicle sales as an example, there are ups and downs, long periods of plateaus and unpredictable drops in auto sales, as during the great recession.

US Total Light Vehicle Sales Data by YCharts.

It would be futile to try to synchronize auto stocks and their increases or decreases, so buying Carvana stock at a price you think is valuable and keeping it in the long run is important. Only an "never sold" approach can offset the cyclical nature of the industry.

Here are 10 great reasons – from proven strategies, differentiators to competitors and long-term potential – for which you can buy Carvana stock without ever selling.