Carvana (CVNA) Is Overvalued

Jose Karlo Mari Tottoc
·3 min read

ShawSpring Partners, a value-focused investment firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. The hedge fund currently is invested in eight multinational businesses that offer products and services around the globe. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.

ShawSpring Partners, in their Q4 2020 Investor Letter said that the valuation of Carvana Co. (NYSE: CVNA) is currently above their estimates that is why they decided to dispose their position in the company. Carvana Co. is a used car retailer that currently has a $46.9 billion market cap. For the past 3 months, CVNA delivered a 34.95% return and settled at $273.47 per share at the closing of January 22nd.

Here is what ShawSpring Partners has to say about Carvana Co. in their Investor Letter:

"We made the decision to exit our investment in Carvana. Over our two-year holding period, we generated an internal rate of return of 114%. Our exit decision is unrelated to a change in our assessment of Carvana’s business quality, long-term opportunity, or management team. Instead, our rationale was based on our internal estimate of Carvana’s valuation, and our forecast for prospective returns. We continue to believe in the strength of Carvana’s vertically-integrated business model, and the superior customer proposition Carvana provides to used-car buyers. While we have no doubts that Carvana will remain a great business, we believe that at Carvana’s current valuation, it makes sense to shift our attention towards other equally fantastic businesses which have long growth runways less appreciated by the market. We will continue to follow the company’s progress closely and expect to take advantage of any dislocations that may cause Carvana’s expected return to meet our high hurdle rate for re-investment."

Pixabay/Public Domain

Last December 2020, we published an article telling that Carvana Co. (NYSE: CVNA) was in 53 hedge fund portfolios. Its all time high statistics is 57. CVNA delivered a massive 229.05% return in the past 12 months.

As of September 2020, ShawSpring Partners had sold their 227K share position in CVNA that amounted to $27.2 million. However, our calculations showed that Carvana Co. (NYSE: CVNA) does not belong to the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.