This US growth action crashed 99%… Then 6,398%shot!

I had never met the used car sales platform from us Carvana (NYSE: CVNA) until several years ago, when someone told a story about the sale of an old second -hand car for more than they had bought. That seemed strange to me, so I looked for the growth stock and its business model.

Clearly, I was not the only one who fought with commercial logic. Between August 2021 and December 2022, Carvana's shares lost 99% of their value.

At that time, I am sure that many investors must have wondered if things were over. Nothing of the sort. In just over two years, the growth stock has shot 6,398%.

What is happening with this assessment?

That means that Carvana is now quoted in a price to profits (p/e) of more than 28,000. Yes, you read it correctly.

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Even so, at least obtained profits last year. That came after many years of losses.

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But … A P/E relationship in tens of thousands? Has the US market became totally angry?

Not necessarily. Carvana has a market capitalization of $ 55 billion. Clearly, there is some serious money invested here.

The company has developed an innovative business model. In his most recently reported quarter, he sold 109,000 cars and generated income of $ 3.7 billion.

When the growth action crashed that it reflected a series of risks: volatile prices in the second -hand car market, concerns about the quality of the Loan Book of Carvana, its ability to continue attending and the losses of the company at that time .

Now, investors seem to be looking from the other side of the lens. Carvana is profitable and grows fast. It has economies of scale that in a platform model like this can be a virtuous circle.

The more buyers and vendors serve, the better the market and the strongest it becomes its offer for consumers. (Although the business model is different, this type of virtuous circle based on platform can be seen on this side of the pond in Car merchant).

I will not go anywhere close to this

However, although the 99% clash now seems exaggerated in retrospect, I am also skeptical that the growth of the 6,398% shares is reasonable.

Although Carvana is profitable, that is accounting. It was still losses at the operational level in its most recent results throughout the year.

See this purely as a car trade platform (similar to, say, eBay) loses a large part of what attracts investors, and also what I think is a key risk.

Carvana's model is both (or more) being a financial company and to buy cars, recondition and sell them.

That great car loan book worries me. Carvana has depended largely on reselling them to a buyer (Financial Allied). That causes a great risk of concentration, if the relationship between Carvana and Ally Sour.

However, even beyond that, Loans for US cars. UU. Historically they have higher breach rates than other types of loans, such as home mortgages.

In a weak economy, I hope that non -compliance rates of used cars can grow, which makes Carvana difficult to download their loans in Ally (or any other person) at an attractive price.

The risks here are well above my level of comfort, even for an US growth stock. I have no plans to invest.