Carvana Crashes
Peter Lynch used to advise investors to think of products and services they encounter in their lives when investing: if your kids like a certain store in the mall, maybe the company that owns that store is worth investing in. In that spirit, my one interaction with Carvana Co. (CVNA) was not a positive one.
That experience may have been in the back of my mind last month, when I decided to bet against Carvana along with a few other stocks after the big post-CPI rally (Fading The Post-CPI Rally). After noting that Carl Icahn was skeptical of the rally, I wrote:
I shared Icahn’s view of the rally, and used it to buy puts on a handful of stocks that spiked by double digits on Thursday. In the event Icahn and I end up being wrong about this being a bear market rally, I looked for stocks with poor fundamentals that might underperform even in a new bull market. These were the four names, along with their percentage gains on Thursday:
- Riot Blockchain, Inc. (RIOT): +10.62%
- Opendoor Technologies Inc. (OPEN): +26.49%
- Carvana Co. (CVNA): +31.62%
- Redfin Corporation (RDFN): +31.8%
Aside from their weak fundamentals and charts prior to Thursday, they were all in vulnerable industries. RIOT is a bitcoin miner, when crypto is being roiled by the FTX collapse; OPEN and RDFN are in real estate, which remains vulnerable to rising interest rates, even if the Fed tapers its rate hikes; and CVNA deals with used cars, the prices of which sank in Thursdays CPI data.
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Fading The Rally, November 11th, 2022.
On Wednesday, Carvana shares crashed to a record low on rising bankruptcy risk. Here’s how Carvana and the other three names I bet against last month have done since then:
Three out of four of them were down double digits as of Wednesday’s close, with Carvana down the most:
- RIOT -19.19%
- OPEN -26.18%
- CVNA -32.83%
- RDFN +16.01%
So far, I’ve been wrong about Redfin. We’ll see if that continues to be the case.
Evening Update
Today’s dead cat bounce in Carvana shares (up 29.5%) was another opportunity to bet against it.
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