Now is not the time to buy Carvana stock as the used-car retailer faces a murky growth outlook, JPMorgan says. Analyst Rajat Gupta downgraded shares of the online used car stock to underweight from neutral, saying in a note to clients that the stock is trading at expensive levels, especially compared to its peers. “At current levels, there is minimal margin for error in execution and there is still significant risk to growth, and especially profitability if the macro deteriorates further given the degree of capacity/fixed costs and a captive estate,” Gupta said. While the bank sees value in Carvana’s business model in the long term and believes the company can gain market share in the used car market, a rising rate environment poses problems for the company in the near term , Gupta wrote. “While 2Q22 results moderated solvency concerns, the focus is rightly on operations, related cash burn and profitable growth,” Gupta said. “In this respect, visibility on industry volume recovery, used price trajectory and interest spreads remains low with 2023 GPU/EBITDA targets at this stage, but they are not certain.” Despite the downgrade, JPMorgan raised its price target on Carvana from $25 a share to $35, citing a recent revaluation of the company’s e-commerce competitors. Shares of the used car stock have fallen roughly 80% this year and the bank’s new target implies the stock could fall another 26% from Friday’s closing price. Carvana shares soared more than 40% on Friday after the company said it was working to cut costs aggressively as it finds itself in an economic slowdown. – CNBC’s Michael Bloom contributed reporting
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