Carvana Stock Price Forecast: Will This Fallen Angel Recover

Summary:
• What is the outlook of the Carvana stock price now that it has shed over 93% of its value in the past few months? We explain what to expect.

The Carvana stock price is hovering near its lowest level since March 2020 as investors keep worrying about demand. CVNA has crashed in the past eleven straight weeks and erased about 93% of its value. Its market cap has crashed to about $5 billion. At its peak, Carvana was valued at over $65 billion, meaning that the firm’s investors have erased over $60 billion of its value.

Why has CVNA crashed?

Carvana is a company that is changing the auto industry. Its business concept is relatively easy. It buys cars in auctions, repairs them, and then posts them in its website and apps. In these platforms, customers can easily scan thousands of vehicles, seek finance, and then buy them. The buyers can then have their cars delivered to them or collect them in its vending machines. 

Carvana has been in a strong growth path as demand for automakers has jumped in the past few years. For example, in 2021, it had over $12 billion in revenue. This was a sharp increase from the $5.58 billion that it generated in 2020 and the $3.9 billion it made on 2019. However, like other Nasdaq 100 firms, it has been ramping up its losses. In the trailing twelve months, the company has lost over $700 million even as demand for autos has remained at elevated levels. 

The Carvana stock price has crashed as investors predict that the company will have a long path to profitability than expected. Also, they believe that the recent acquisition of ADESSA will have a negative impact on the company. However, analysts at Bank of America expect it to recover. They said:

“Together with the move to acquire ADESA and the resulting expensive debt raise, investors appear to have largely given up on this once high-flyer. We, however, still believe in Carvana and its opportunity for one glaring reason: it is a fundamentally better way for consumers to shop for and buy used cars, in our view.”

Carvana stock price forecast

The daily chart shows that the CVNA share price has been in a strong bearish trend in the past few months. The stock has moved below all moving averages. The sell-off accelerated when it moved below $100 in April. A closer look shows that oscillators like the MACD and the Relative Strength Index (RSI) have formed a bullish divergence pattern.

Therefore, in my view, the sell-off will likely continue in the coming weeks, with the next key level to watch being at $15. However, a move above the resistance level at $35 will invalidate the bearish view.