Piper Sandler analyst Alexander Potter has recently downgraded the stock rating of Carvana Co., a prominent used-car retailer. Despite the company’s impressive performance in its latest quarter and the announcement of a debt deal that garnered much applause, Potter believes that Carvana’s shares may not have significant potential for further growth.

The decision to downgrade the Carvana shares comes after RBC Capital Markets also delivered a bearish downgrade earlier in the week. Potter emphasizes that an increase in Carvana’s valuation would necessitate adjustments to their long-term volume outlook. Although recent operational enhancements have instilled greater confidence in the company’s ability to achieve consistent profitability, they do not justify altering Potter’s long-term used vehicle market-share expectations.

While the company’s shares initially soared by 20% following the release of its earnings report and debt-deal announcement, they have already surged by nearly 900% in 2023.

Potter acknowledges that Carvana’s debt restructuring should eliminate concerns regarding the company’s going-concern risks. However, he still finds areas of contention with the company’s earnings report.

The Resurgence of Carvana: A Chart Depicting its Meteoric Rise

As Carvana’s stock makes an impressive comeback, it is worth noting the remarkable surge it has experienced. The included chart illustrates the company’s rapid climb in recent times.

Despite addressing concerns with its debt and displaying promising operational improvements, Carvana may face limitations in terms of future growth. However, only time will tell how the company navigates these challenges.

Carvana’s Financial Prospects Remain Uncertain

Carvana, an online car retailer, has received mixed reviews from analysts regarding its ability to maintain cost discipline at higher volumes. While the company’s gross profit per unit experienced a temporary boost due to several favorable factors, it is uncertain whether this momentum can be sustained in the long run.

In his latest note, analyst Potter adjusted his price target for Carvana shares to $48 from $29, indicating only minimal potential for further growth based on Thursday’s closing price of $46.73.

Another analyst, Colin Sebastian from Baird, already held a cautious stance on Carvana shares and added that he now sees a potential for the company to achieve positive free-cash flow. However, he emphasized that this would require significant operational discipline and a substantial increase in retail unit sales.

Regarding the recent debt restructuring by Carvana, Sebastian noted that it was not exactly what he expected but believes it is a sensible solution for both parties involved. He also stated that the outcome was straightforward once Carvana accomplished its operational milestones.

It is worth noting that Sebastian had a neutral rating on the shares.

See more: Carvana’s debt restructuring is good news, but its losses are ‘hardly in the growth stock handbook,’ analyst says

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