Carvana Co. (NYSE:CVNA) is flashing a warning signal for value-focused investors, dropping into the bottom 10th percentile of stocks for valuation even as its share price surges amid the S&P 500 index inclusion.
Check out CVNA’s stock price here.
Valuation Slides Into Bottom Percentile
While the stock has rallied by 24.04% over the last month on high hopes for Federal Reserve interest rate cuts, Benzinga Edge’s Stock Ranking data reveals that the company’s fundamentals are struggling to keep pace with its soaring market price.
The most critical shift in Carvana's profile is a week-on-week decline in its value score, which fell from 11.36 to 9.67.
According to Benzinga’s ranking methodology, the value score is a percentile-ranked composite that evaluates a stock’s worth by comparing its market price to fundamental measures like assets, earnings, and sales.
A score of 9.67 indicates that Carvana is now more expensive than over 90% of the market relative to its fundamentals. As the stock price climbs without a proportional immediate jump in underlying assets or earnings, the spread between price and value widens, pushing the stock deeper into “overvalued” territory.
Meanwhile, it sports a growth score of 99.15, the highest among its key metrics, with a strong price trend over the short, medium, and long terms. Additional performance details are available here.
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Rate Cut Bets Fuel Momentum
The disconnect between price and value is largely driven by macroeconomic optimism. Investors are betting heavily that the Federal Reserve will cut interest rates at its upcoming policy meeting, with the CME Group's FedWatch tool projecting an 87.2% chance of a cut.
Lower rates are particularly beneficial for Carvana, as they reduce the cost of holding inventory and lower monthly payments for shoppers, potentially boosting demand.
In a major milestone, Carvana was also added to the S&P 500 on Friday. The stock, which plummeted to a low of $3.72 in late 2022, closed Friday 0.23% higher at $399.77 apiece. The stock further jumped by 9.04% in premarket on Monday.
Furthermore, it has gained 100.33% year-to-date and 63.82% over the year.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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