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Carvana stock price has plunged: will it go bankrupt?

Carvana (NYSE: CVNA) stock price has plunged in 2022, making it one of the worst-performing technology and consumer discretionary stocks. The shares dropped to a low of $8.76, which was its lowest level since 2017. It has crashed by more than 97% from its highest level in 2021.

The rise and fall of Carvana

Carvana is a leading company in the automobile and technology sectors. The company buys used cars in auction and then lists them in its website and mobile applications. Customers then buy their favourite cars and then pick them in one of its vending machines. Most customers opt for the company’s delivery service.

Carvana stock price has been in a strong bearish trend in the past few months as concerns about the company’s growth continue. For one, with interest rates surging, car buyers have slowed their purchases in the past few months.

Last week’s results did not help the situation. The company sold 102,570 cars in the third quarter, a decrease of 8% from the same period in 2021. Its total revenue crashed by 3% to $3.38 billion even as ADESA contributed $193 million. Total gross profit per unit dropped to $3,500. Carvana also downgraded its forward guidance. 

Analysts are concerned about the Carvana stock price. In a note, Adam Jonas of Morgan Stanley warned that Carvana could go bankrupt. He downgraded his stock forecast to $1 or even $0.10 in a worst-case scenario. He said:

“While the company is continuing to pursue cost-cutting actions, we believe a deterioration in the used car market combined with a volatile interest rate/funding environment (bonds trading at 20% yield) add material risk to the outlook.”

Carvana’s business faces numerous challenges as the Fed maintains an extremely hawkish tone. Further, shareholders face a real possibility of equity dilution.

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. It has moved below the key support at $19.37. The stock has managed to move below all moving averages.

The Relative Strength Index (RSI) has moved below the oversold level. Therefore, in the immediate short term, the shares will likely continue falling as sellers target the next key support at $5. A move above the resistance at $10 will invalidate the bearish view.

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