Carvana Vs Nikola
Let’s really point out how irrational and wrong the market can be sometimes.
- $CVNA (Carvana Co) has a short interest of 58% of the total float.
- $NKLA (Nikola Corp) has a short interest of 30% of the total float.
Carvana has a legitimate business with almost a perfect customer record of 4.8/5 stars on Trustpilot. Transforming second-hand car sales.
Nikola was founded by a pure fraudster, and the only revenue the company reported was the solar panels installed on the roof of the now-expelled founder.
Carvana has already increased revenue by more than $12 billion dollars, while Nikola has yet to reach $100 million in revenue.
Both have a similar market cap of around $1B dollars and suffered a similar decline of +90% from their respective highs.
There is a real incentive by more than half of the market to spread as much negative news about Carvana as possible.
This very much reminds me of $TSLA (Tesla Motors, Inc.) in 2018, Tesla was also going “bankrupt”. And the stock became extremely shorted by retail and institutional investors.
Elon Musk became hated by many. And constantly found himself accused of manipulating the market by tweeting, smoking weed on Joe Rogan and so on.
This all went horribly wrong of course. And by the end of 2021 probably only 1% of the total Tesla stock became sold short.
So the market assigns a heavier short interest to Carvana than to Nikola. Which is super interesting to see, you can make out for yourselves if this is correct or not.
I’m simply willing to look stupid here for a long time because if you are not willing to do so in investing you will never be able to outperform.
If you want better results than the market your thinking has to be different from the market by definition.
On Carvana the long thesis is simple:
They operate in a highly fragmented trillion-dollar market!
And the current biggest player only makes up 1% of the total addressable market.
Carvana simply offers a much better value proposition to customers, with a much broader offering than any traditional dealership, free delivery at home and a 7-day return policy it is a really hard model to match.
Buying a Car through Carvana can give a customer peace of mind.
Which is a big difference compared to buying a car through a murky dealership down the road.
It’s similar to buying from $AMZN (Amazon.com Inc) vs an unknown webshop from a company you have never heard of, Amazon gives you the guarantee that you will get your product as advertised and if not so you can get a return/refund.
Carvana is targeting $30K in revenue per retail transaction when it sells 2 million cars of the 30 million sold each year in the United States this brings us to $60B in revenue for the company.
With a net income margin of 8% this would roughly get us $4.8B in net income every year.
The current market cap of around $1 billion will look like absolute peanuts and if we apply very conservative multiples it would bring us about 50x times higher from where we are today.
I’m relatively optimistic we can make it there, and only time will tell.
If it turns out that I was wrong about Carvana I will sell and we live to fight another day.
If we turn out to be right this could mean for me personally. I would never have to work a day in my life again.
I like the odds here, but nothing is guaranteed!
In conclusion, it maybe worth noting that Carvana saw $4M worth of insider purchases vs $8M in sales for Nikola.
CIO @ Moretus Capital