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Carvana Stock Price Forecast: The Writing Was on the Wall

Indianapolis - Circa May 2021: Carvana used car vending machine. Carvana is an online only preowned and used car dealership.

Carvana stock price has collapsed as the dot com bubble 2.0 continues. CVNA shares tumbled to an all-time low of $7.10 on Monday. It has plunged by more than 97% this year and is down from an all-time high of over $300. This decline has brought the company’s market cap to slightly over $1 billion.

Carvana insiders selling shares

Carvana stock price has collapsed this year while its bonds are trading at distress levels. The company is also facing high risks of collapse as sales of used cars crash. Most people have paused buying cars as interest rates surge. As a result, the company is battling a period of slow growth and high interest payments.

Carvana is working to sort its crisis. Last Friday, the company announced a new round of layoffs as it blamed the changing market conditions. As a result, S&P Global Ratings warned that the company’s liquidity will be eroded faster than expected. It downgraded its debt to CCC+, meaning that they will likely not be paid in full. Its $3.25 billion bond had a coupon of 10.25%, meaning that it will double its interest expense.

Carvana’s near collapse has hurt many investors. However, a closer look at its insider transactions show that the firm’s CEO has been selling shares aggressively for years. In April, he bought shares worth almost $300 million in the company. However, before that, he was selling shares aggressively, which is a major red flag. In 2021, Ernest C Garcia sold shares worth almost $1 billion in the company. 

A major shareholder who doubles as the CEO dumping shares is often seen as a major red flag. For one, if they are confident in the company, they would hold the stock for a long time. Unfortunately, many retail traders and institutional investors like Calpers, Neuberger Berman, and Alliancebernstein holding the bag.

Carvana stock price forecast

The daily chart shows that the CVNA stock price has been in a freefall in the past few months. The sell-off saw the stock drop below the important support level at $19.37, which was the lowest level on June 15. It has dropped below all moving averages while the Relative Strength Index (RSI) has moved below the oversold level. 

Therefore, the stock will likely continue falling as sellers target the next key support at $5. Below that level, the company will officially enter the penny stock area. A move above the resistance at $19 will invalidate the bearish view.

Carvana stock price