Insider transaction activity can give investors a more complete view of activity within the world’s publicly-listed companies. No one has more knowledge of a company, and its prospects, than its leaders.
In this report, we are going to highlight some interesting insider buying at Carvana Co (CVNA:US). Carvana operates an e-commerce platform for buying used cars. Through its platform, consumers can research and identify vehicles, inspect them using its 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase vehicles, and schedule delivery or pick-up, all from their desktop or mobile devices. The company is listed on the New York Stock Exchange and currently has a market capitalization of $4.3 billion.
Carvana Co: Insider Buying
Our data shows that since mid-May, three insiders at Carvana have purchased stock. Those who have snapped up shares include:
- Founder and Chief Brand Officer Ryan Keeton (40,000 shares @ $24.75 per share)
- General Counsel Paul Breaux (59,000 shares @ $29.34 per share)
- Board member Dan Quayle (18,750 shares @ 39.14 per share)
In total, the three insiders have spent just under $3.5 million on Carvana stock.
Bullish Trading Activity
This trading activity is worth highlighting for several reasons.
Firstly, one of the buyers here, Ryan Keeton, is a top-level insider. Mr. Keeton co-founded Carvana in 2012 and has served as Chief Brand Officer since. With the exception of Co-Founder and CEO Ernie Garcia III, it’s unlikely that there is anyone who knows the company better than him.
Secondly, the group’s General Counsel has purchased a large amount of stock. Generally speaking, General Counsels tend to be quite risk averse in nature. The fact that Carvana’s General Counsel has just spent around $1.7 million of his own money on company stock (and increased the size of his holding substantially in the process) is therefore very interesting.
Third, director Dan Quayle – who has served on the board since 2017 – is an experienced investor. Since 1999, Mr. Quayle has worked at Cerberus Capital, a private investment firm based in New York. He has served as Chairman of Cerberus Global Investments since 2001. Given his background, he is likely to have a good understanding of the intrinsic value here.
Share Price Weakness
Carvana shares have had a terrible run recently, falling from around $120 to $23 since the start of April.
One driver of the share price fall was the group’s Q1 results, which were disappointing. Not only did Carvana post a much larger loss than expected (-$2.89 per share vs the consensus forecast of -$1.44) but it also announced a $1 billion stock offering. The company blamed Covid, high used vehicle prices, changes in interest rates, and other macro factors for the poor performance.
Another driver has been weak broker sentiment. Recently, a number of brokers have downgraded the stock and/or lowered their price targets. For example, Stifel just cut its price target by 65% to $40 stating that deteriorating capital market conditions and worsening trends in the used vehicle industry have eroded its conviction in the path for Carvana to secure the necessary capital to realize sufficient scale and self-funding status. Meanwhile, Wells Fargo recently reduced its price target by nearly 60% to $65. "Recent evidence suggests that macro headwinds are building, access to capital is dwindling, and appetite for high growth, FCF negative companies is becoming increasingly scarce," wrote Well Fargo’s analysts.
The stock has also been hit by the news that Illinois suspended its license to sell vehicles on May 10 over mishandling of paperwork related to its vehicle sales.
Clearly, the e-commerce company faces a few challenges right now. However, the buying from insiders indicates that they are confident in the long-term story and that they expect the stock to bounce back.
We see the large insider buys here as a bullish indicator.