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Case Study

Carvana: A Stock Market Lemon or a Peach?

Benjamin C. Anderson, Danielle S. Lazerson, Marco Pagani
February 1, 2024
SKU:
BUS-009832
Region: 
North America
Topic: 
Accounting & Finance, Strategy & General Management
Length: 
3 pages
Keywords: 
carvana, financial statement analysis, corporate finance, disruptor, disruptive innovation, Porter's Five Forces
Copyrighted by: 
Society for Case Research
Student Price: 
$4.00 (€3.71)
Average rating: 
0

In August 2021, Carvana was trading at an all-time peak of $360 per share. Carvana was one of the youngest companies in the Fortune 500 and was praised for its innovative approach to used car sales (McElroy, 2021). By the end of 2022, the stock was trading in the single digits, 95% below the all-time peak price. Increases in interest rates by the Federal Reserve over 2022 had resulted in the company’s leverage becoming unaffordable and drying up the market for used cars. The lingering effects of the COVID-19 pandemic also made adding new cars increasingly unaffordable. Nonetheless, the company’s core business model remained the most innovative in the industry. At the start of 2023, the question was: is Carvana a stock market lemon or a peach?

Learning Outcomes: 

In completing this assignment, students should be able to:

1. Examine competitive forces to the used car industry.

2. Discuss the impact of disruptors on industries.

3. Assess liquidity risks to a publicly traded company using financial statement information.

4. Evaluate the factors underpinning a company’s precipitous decline.