Carvana

Carvana Co receives a 3-star quantitative star rating, illustrating our stance that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a price consistent with our quantitative fair value estimate, which has a medium uncertainty rating.

The company's valuation metrics undermine our fair value estimate. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. Reflecting the firm's valuation is its enterprise value to EBITDA ratio of 28.5, which lies in the top 20% compared with peers globally. This suggests that the value of its enterprise value, or the value of its shares and debt, is a high multiple of the generated EBITDA. This contributes to our balanced fair value estimate.

The company's lack of profitability is an additional cause for concern. Companies with low profitability are often less resilient in recessions and are likely to generate weaker future cash flows for shareholders. The firm's enterprise value to free cash flow ratio of 36.7, for example, ranks in the top 30% compared with peers globally. This suggests limited cash flow is available for reinvestment or return to shareholders, which further promotes our neutral price/fair value ratio.

The company's narrow economic moat rating suggests it should be able to maintain robust profitability for a decade or longer before competition erodes its advantage. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.