- Carvana shares moved higher during Tuesday's session after Truist initiated coverage with a Buy rating and a $314 price target.
- JPMorgan said a week ago that digital auto retailers could outperform given the transition from in-person to online car buying.
- Carvana stock could see some consolidation given its oversold relative strength index (RSI) reading, but the intermediate-term trend remains bullish.
Truist analyst Naved Khan believes that Carvana's platform for buying and selling used cars is at the forefront of digital disruption in the $800 billion-plus industry. With expanding vehicle selection, increasing coverage, faster delivery, and rising brand awareness, the analyst sees robust 32% compound annual revenue growth and a roughly 9% market share over the next 10 years.
Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment's lifespan.
The favorable comments come a week after JPMorgan said that it expects digital auto retailers to benefit from a continued uptick in online penetration of used vehicles. In addition to Carvana, the analyst cited potential for Lithia Motors, Inc. (LAD) and Vroom, Inc. (VRM) while downgrading CarMax, Inc. (KMX) to Neutral over same-store sales growth concerns.
From a technical standpoint, Carvana stock moved toward its prior all-time highs during Tuesday's session. The RSI moved closer to an overbought value with a reading of 63.87, but the moving average convergence divergence (MACD) continued to trend higher. These indicators suggest that the stock has more room to run but could see some near-term consolidation over the coming sessions.
Traders should watch for a breakout from trendline resistance and prior highs of $267.37 to fresh highs. If the stock fails to break out, traders could see some consolidation between trendline support and resistance levels of $229.29 and $267.37, respectively. If the stock breaks down from trendline support, traders could see a move toward reaction lows and Fibonacci support at $177.98, although that appears less likely to occur.
The Bottom Line
Carvana shares rose more than 4% during Tuesday's session after Truist initiated coverage with a Buy rating and a $314 price target. While the fundamental picture remains very bullish, traders could see some near-term consolidation given the overbought RSI readings, although the intermediate-term technical picture remains bullish.
The author holds no position in the stock(s) mentioned except through passively managed index funds.