It was Thanksgiving week. As such, the trading week was shortened and not surprisingly, insider buying took a nap. Maybe a little too much tryptophan put corporate executives in sleepy mode. While insiders took it easy during a long weekend, the market had some energy looking like it could be primed for a holiday rally.
With that belief as our working thesis, our focus this week was to find a company that’s crashed where insiders could be bargain hunting. Carvana Co. (CVNA) fits the description. The online car dealer traded as high as $296.70 in the past year. CVNA’s 52-week low is $6.50 and trades at $7.97 as we type.
Open Webster’s Dictionary and that could be the definition of a crashed stock.
Carvana operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform allows customers to research and identify a vehicle; inspect it using the company’s 360-degree vehicle imaging technology; obtain financing and warranty coverage; purchase the vehicle; and schedule delivery or pick-up from their desktop or mobile devices.
CVNA’s insiders have gone on a November shopping spree like it’s Black Friday. A pair of executives and a trio of directors combined to purchase 336,000 shares, investing nearly $2.7 million since November 7th.
Chief Product Officer (CPO) Daniel Gill acquired 133,000 shares at $7.62, putting more than $1 million to work. Thomas Taira, President Special Projects added 45,000 shares, paying $351,400. Director Michael Maroone bought an even 100,000 shares at $8.61 for $861,000. Director Ira Platt bought 50,000 shares at $7.40 for $370,000. Finally, Director Gregory Sullivan secured 8,000 shares at $10 for $80,000. (1).
When multiple insiders purchase stock at essentially the same time, that’s what we call cluster buying.
Aside from acting simultaneously, many in the cluster have a history of being on the right side of the trade.
- Sullivan sold 2,500 shares in September 2021 at $340.21. (2)
- Platt purchased 26,500 in April 2017 at approximately $12.60. He started selling a year later at $27.50 and kept on selling through August 2021 at $346.52. (3)
- Maroone was a buyer in 2017 at $15. He bought more in 2018 around $44, sold $2.6 million in 2020 at $262.03. Then the Director had a misstep, buying $2.6 million at $104.77 in 2022. (4)
- Thomas sold, sold, sold, starting in November 2014 at $17 all the way through February 2022. Except for the first and last on the list (9 shares at $164.78), all the others were at $241.39 and above. (5)
- Finally, Gill was in sell mode only from April 2018, at $27.50 through February 2022 at $164.78 before buying a little more than $2 million in June 2022. (6)
While not perfect, the cluster has a strong history of being on the right side of the tape.
Wall Street believes they could be on the right side again with a one-year price target of $19.83. (7) According to analysts, Carvana is expected to lose $7.41 per share next year with sales rising slightly, from $13.99 billion this year to $14.33 billion in 2023.
Since earnings per share are expected to be underwater, we’ll use the topline to project out possible price targets. In the last five years, the online auto dealer traded as high as 9.72 times sales (P/S), as low as 0.05 (current) (8), while averaging 4.19.
Using 2023’s sales forecast and Carvana’s recent P/S history, we generate the following possible price targets:
Max P/S: $161.84
Average P/S: $71.08
Low P/S: $0.85
OVERALL: Carvana Co. (CVNA) upside potential outweighs its downside potential; however, insiders and potential shareholders could still lose a lot of money with the car dealer at its P/S lows. CVNA is only appropriate for investors with maximum risk tolerance and at least an 18-24 month time horizon.
1 – https://www.secform4.com/insider-trading/1690820.htm
2 – https://www.secform4.com/insider-trading/1027030.htm
3 – https://www.secform4.com/insider-trading/1702455.htm
4 – https://www.secform4.com/insider-trading/1088011.htm
5 – https://www.secform4.com/insider-trading/1607889.htm
6 – https://www.secform4.com/insider-trading/1700538.htm
7 – https://finance.yahoo.com/quote/CVNA?p=CVNA
8 – https://finance.yahoo.com/quote/CVNA/key-statistics?p=CVNA