Why Carvana Stock Was Surging Today

What happened

Shares of Carvana (CVNA 10.29%) were surging on Monday, up 8.8% as of 1:45 p.m. ET, and climbing as high as 10.3% during the day. The stock is trading at around $45 per share and is up some 847% year to date.

The markets were trending higher on Monday, as the S&P 500 was up 23 points (0.5%), the Dow Jones Industrial Average jumped 203 points (0.6%), and the Nasdaq Composite rose 92 points (0.7%) as of 1:45 p.m. ET. 

So what

Online car dealer Carvana announced via press release that a bill it had championed in Illinois permitting vehicle home delivery for car buyers became law. The measure passed in the Illinois Senate 57-0 and in the Illinois House 113-0, and was signed into law by Gov. J.B. Pritzker.

This bill will undoubtedly make it easier for consumers in the sixth-largest U.S. state to buy and sell cars online through its platform. 

Another catalyst was the news, via SEC filing, that Carvana CEO Ernest Garcia bought 3.1 million shares of Carvana stock on Aug. 18 at $37 per share. 

Now what

Carvana came off a pretty strong second quarter, with record gross profit per retail unit of $6.65 billion and record adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $155 million. While revenue was down 23% year over year to $3 billion, the company continues to cut costs, as it has realized more than $1.1 billion in annualized cost reductions in the last 12 months. 

It was still operating at a loss, with a net loss of $105 million in the quarter, down from a net loss of $439 million in the second quarter a year ago.

The company is moving toward profitability, and even with the run-up in stock price, the price-to-sales ratio is still low at 0.37. However, revenue and units sold were down in the last quarter.  

This Illinois news is obviously good, but it remains a tough market with a lot of competition in this space, and more car companies going online. It is hard to ignore the jump in stock price, but keep an eye on revenue and sales trends, as well as its profitability. 

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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