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Carvana Co. (Nasdaq: CVNA) is one of the few bright spots in this year's rather dull crop of IPOs. Shares of the stock initially sold off following its first day of trading as investors were wary that its disruptive way of selling used cars (mail order? vending machine?) was more about gimmicks than real sales. But all that changed when the company reported record profits earlier this month. Shares shot up from around $9 to just over $20 in just 2 weeks. Today shares are holding to those highs and now investors are wondering: is this the real deal or will it fall back again?
Carvana Co. is trying to take the Amazon platform to the used car sales industry. You search for your next car online, but it online and finance it online (so far, so Autotrader.com). But the unique selling points of Carvana are: all cars are certified, there are no dealership markups (saving an average of $2200 per car), the car is delivered right to your door for free, and you have time to test drive it before committing yourself. All of these disruptors have caught media attention and earned the company a lot of buzz.
Let's look at the numbers: at the aforementioned earnings report, the company reported a growth in revenues of 118% to $159M (quarter). Over 8300 cars were sold, with 7700 cars in its inventory. That's not enough yet to turn a profit on its thin ...