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What You Need to Know
- Just a few years ago, Carvana’s shares looked like lemons. Now the company is on track to see its stock join the S&P 500.
- The company went public in 2017 at a $15 IPO price. The stock is now well above $400. It hasn’t been a straightforward trip here.
Carvana may have staged a comeback for the ages.
The digital car seller is joining the benchmark S&P 500 just a few years after Wall Street had written off the company as a zombie. Carvana (CVNA), along with building materials supplier CRH (CRH) and construction services provider Comfort Systems USA (FIX), will begin trading as a component of the S&P 500 on Dece. 22, according to S&P Global.
Carvana’s path to the S&P 500 has been a bumpy one. The company went public in 2017 at a $15 IPO price, but shares finished their first day of trading at about $11. The stock crept higher over the following years as Carvana expanded into new markets and built out its network of coin-operated car vending machines. Sales soared from $859 million in 2017 to nearly $4 billion in 2019. But expenses grew nearly as fast, and Carvana remained unprofitable when the Covid-19 pandemic really kicked the business into overdrive.
Covid-19 disrupted manufacturing around the world, squeezing supply in the new car market and driving up used car prices. At the same time, stay-at-home orders made online shopping the default across the U.S. It was a perfect recipe for Carvana: Sales tripled in the two years after the start of the pandemic. The stock, which fell to about $29 in the Covid sell-off of March 2020, soared 1,160% to a record high of $370 in August 2021.
Why This Matters to Investors
The story of how digital car seller Carvana found its way into the benchmark U.S. stock index is one of a dramatic turnaround for its business—and for its shares, which in recent years have traded below $4 apiece and are now above $400.
The company’s debt also tripled, which became one of Carvana’s many problems when the Federal Reserve, in March 2022, began raising interest rates to battle soaring prices. Rate hikes made the company’s debt more expensive. They also reduced demand for cars right as pandemic-era bottlenecks were clearing.
Wall Street analysts began writing obituaries for the company, which appeared destined for bankruptcy. The shares lost nearly all of their value, falling to an all-time low of $3.72 in December 2022.
The next year, Carvana launched a cost-cutting effort that included layoffs and restructuring. It also struck a deal with creditors to ease its debt burden. Interest expenses plateaued, operating costs declined—and investors came back around. Shares closed at a record $399.77 on Friday, up more than 10,000% over the past three years.
Not everyone is sold on Carvana. Shortseller Hindenburg Research in January published a report questioning the legitimacy of Carvana’s turnaround. Short-seller Jim Chanos has been outspoken skeptic this year. Still, investors continue the stock after its long climb: The shares jumped another 10% on Monday on the index news.
Being added to the S&P 500 is more than a vote of confidence; it brings tangible benefits. An estimated $13 trillion was indexed to the S&P 500 at the end of 2024, according to S&P Global. The investment funds that track the S&P 500 will need to buy Carvana stock in the coming weeks to reflect the changes announced Friday.
