Investors use various metrics to value companies, but in terms of market capitalization — which is one of the most popular — Carvana has absolutely exploded. With a market capitalization topping $24 billion, Carvana has seen a tremendous jump in its market valuation.
Carvana’s purpose is to change the way people buy and sell cars by taking the process online and making it easier. Thanks to companies like Carvana, the idea of making a large purchase like a car online — once considered unfathomable — has been normalized.
Coupled with the boom in demand for used cars, Carvana has seen a spectacular rise in its stock price since early 2020.
To see how much the company is worth, take a look at this snapshot of the current state of Carvana, along with a discussion of its history, value and future outlook.
|Carvana: Company Snapshot|
|Founders||Ernie Garcia III, Ben Huston, Ryan Keeton|
|CEO||Ernie Garcia III|
How Much Is Carvana Worth Now?
Carvana shares dropped from about $110 in February 2020 to $29.35 on March 16, 2020, as the pandemic all but shut down the economy, but it’s been on a mostly upward tear ever since, albeit not without some volatility along the way. From a 52-week low of $219.40, Carvana’s share price reached over $376 during the same period. As of Nov. 17, the company’s value had climbed to over $24 billion. But what does it mean to say a company “is valued” at over $24 billion? Market pundits use market capitalization to determine how much a company is worth.
Carvana’s Market Cap
Carvana’s market cap varies from moment to moment based primarily on its share price, which was $300.79 when the market closed on Nov. 16. Although an increase in outstanding shares could also increase its market cap, that type of change occurs far less frequently than a change in share price, which can occur in less than one second. Here is Carvana’s share price range over the past 52 weeks:
Share price: $219.40 – $376.83
Carvana’s market cap has fluctuated proportionately to the stock prices over the same period. Thus, the ups and downs of Carvana’s share price can result in a wide valuation range for the company.
What Is Market Capitalization?
Market capitalization is simply the number of outstanding stock shares a company has issued times its current market price. So, for example, if a company has issued 1 million shares of stock and its share price is $50, the company has a market capitalization of $50 million. Carvana currently has 84.5 million shares outstanding, so 84.5 million times the closing stock price of $300.79 on Nov. 16 equals about $24.417 billion.
Market cap does have its drawbacks as an evaluation method, however. For starters, market cap changes frequently, and it’s closely tied to the company’s current share price. It doesn’t take into account any of the direct financial metrics of the company, such as earnings per share, growth rate or book value.
By way of comparison, the price/earnings ratio, which is another popular valuation method, is also closely tied to a company’s market share price. The P/E ratio also relies heavily on a company’s earnings, which some investors feel is a more important determinant of a company’s valuation.
Calculating Carvana’s Net Worth
Carvana’s net worth as of the quarter ending Sept. 30 was $708 million. In its simplest form, net worth is a company’s assets minus its liabilities.
|What Is Carvana Worth Now?|
|Share Price, 52-Week Range||$219.40-$376.83|
|Fiscal Year 2020 Revenue||$5,586,565,000|
|Fiscal Year 2020 Profit||-$171,140,000|
|GOBankingRates’ Evaluation of Carvana’s Net Worth||$1,732,463,000|
Of course, methods of determining the value of a company are wide and varied, each with its own merits and blind spots.
GOBankingRates uses company data to calculate net worth in a slightly different manner. The GOBankingRates company net worth is a calculation of a company’s worth based solely on concrete, measurable figures like assets and revenue. It’s a more conservative valuation than most, taking into account only full-year profits and revenue from the last three years and the company’s assets and debts.
By this GOBankingRates metric, Carvana’s net worth is currently $1,732,463,000.
Carvana’s CEO, president and chairman, Ernie Garcia III, got the idea for Carvana while working for his father’s company, DriveTime. The idea came from wholesale car auctions, which take about 30 seconds and offer a return policy. Garcia III thought that retail customers would much prefer that type of car-buying experience rather than the traditional, four-plus-hour negotiation process with a traditional dealer. This Carvana founder’s net worth is currently $8.3 billion, reported Forbes.
Ben Huston co-founded Carvana and has served the company as its chief operating officer ever since. Ryan Keeton is Carvana’s chief brand officer — a role he has filled since helping co-found the company in 2012.
Key Product Lines Contributing to Revenue
Carvana has one primary focus as a company, and that is to disrupt the automotive sales industry through the application of technology. Carvana’s goal is to provide a seamless, online auto-buying experience for its customers.
In addition to earning money from automotive sales and purchases, Carvana generates revenue from vehicle financing and ancillary products like gap insurance and vehicle service contracts.
Here are some of the earnings highlights from Carvana’s third quarter ending Sept. 30:
- Retail unit sales jumped almost 74% compared to Q3 2020, to 111,949
- Revenue grew 125% compared to Q3 2020, to $3,480,000,000
- Total gross profit rose 99.6% compared to Q3 2020, to $523 million
- Gross profit per unit was $4,672, up from $4,056 in Q3 2020
For the company’s most recent year end, Dec. 31, 2020, the company reported annual revenue of $5.587 billion.
Current Top Shareholders
The top 10 shareholders of Carvana stock are all asset managers or mutual fund companies. As a group, institutional and mutual fund shareholders own a whopping 116.80% of all Carvana shares. Here’s what the top shareholders list looks like:
Carvana’s Top 10 Shareholders
- Baillie Gifford and Company, 9.02% of shares
- T. Rowe Price Associates, 8.91% of shares
- FMR LLC, 7.92% of shares
- Morgan Stanley Investment Management, 7.68% of shares
- Tiger Global Management LLC, 7.18% of shares
- The Vanguard Group, 5.73% of shares
- Blackrock Inc., 5.15% of shares
- Jennison Associates LLC, 4.60% of shares
- Spruce House Investment Management, 4.38% of shares
- CAS Investment Partners LLC, 3.86% of shares
All of these shareholders may change their level of investment at any time — even dropping it down to 0%. But since Carvana is currently such a popular company, these percentages might not change by a great amount. This lack of change is particularly true for the index funds on the list, as by fund mandate, they are required to match the company’s weighting in their respective index.
How Does the Future Look for Carvana?
It’s hard to deny that Carvana has grown tremendously over the past few years and is a Wall Street darling, even if it’s not yet profitable. The company is well-positioned to grow — and in fact, is expanding, with two new facilities for painting, repair and detailing coming to San Antonio, Texas, a new car vending machine slated for Virginia and new online car shopping for as-soon-as-next-day delivery for Des Moines, Iowa, all of which the company announced the week of Nov. 15. Carvana has also become user-friendly for mobile users, as consumers are becoming more comfortable with online transactions.
Judging by recent trends, the future seems to look rosy for Carvana. Although the company suffered some COVID-related disruptions early in 2020, the stock has rebounded, growing 25.57% since the beginning of 2021.
According to Carvana, 86% of customer purchases involve online research, 61% of consumers surveyed would consider buying a car online and 52% test drive only one vehicle. Although the company lost money in the third quarter due to inventory shortages and supply chain problems, the overall trends bode well for Carvana’s future.
Wall Street analysts tend to agree, with the average rating among 14 analysts covering the stock being “buy.” The current average price target among these analysts is $379.22, roughly 26% above the stock’s most recent closing price.
Is Carvana Worth the Money?
Carvana seems like a good bet as part of a diversified portfolio, but only if you have a high risk tolerance. The company has benefited from market trends, but it has yet to report profits, and its stock has already seen a tremendous surge. Wall Street analysts do tout the stock as a buy, targeting 12-month price gains in the double digits.
Investing in a specific stock involves much more than analyzing the profitability of a given company. Your financial situation plays a large part in determining whether or not you should invest in stocks at all — let alone invest in a specific stock like Carvana.
Working with a fiduciary financial advisor is a good way to delineate your investment objectives, risk tolerance and personal financial situation to determine if investing in stocks is a good match for you.
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Daria Uhlig contributed to the reporting for this article.
Data was compiled on Nov. 17, 2021, and is subject to change.
Methodology: The GOBankingRates Evaluation assesses a company’s net worth based on the company’s total assets, total liabilities, and revenue and net income from the last three years. Base value is established by subtracting total liabilities from total assets from the company’s last full fiscal year. Income value is established by taking the average of the revenue from the last three full fiscal years, plus 10 times the average of the net profits from the last three full fiscal years, and then calculating the average of those two figures. The final GOBankingRates Evaluation number is the sum of the base value and the income value.