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Carvana's Stock Proves How Much Wall Street Knows

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Warren Buffett, a billionaire and one of the greatest investors of all time, loves to talk about Wall Street analysts, in that he loves to explain how useless they are for anyone seeking guidance on investing. People should come to their own conclusions about a company before buying its stock, Buffett says, or just sock all of your money into an S&P 500 index fund if you’re feeling lazy. Carvana, the used car seller whose stock has been in a freefall for the last year, is a good case in point with regard to Buffett’s opinion of Wall Street analysts. That’s because I don’t think analysts are guessing when it comes to Carvana, but if they were, you probably wouldn’t notice a difference.

For example, here are the recent opinions of three analysts about Carvana, via Bloomberg on Tuesday:

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“We are lowering our price target to $7 from $30 to reflect a higher likelihood of insolvency by 2024 without a faster reduction in operating costs and/or access to significant liquidity,” Robert W. Baird analyst Colin Sebastian wrote in a note on Tuesday.

[…]

“We do not see industry headwinds abating in the near term given worsening consumer sentiment and interest rates that will likely remain above recent averages for an extended period of time,” Cowen analyst John Blackledge wrote in a note. He cut the stock to the equivalent of a hold from buy, and lowered the price target to $10 from $55.

[…]

“As used-car prices fall, we believe that Carvana will struggle to make a profit on vehicles previously purchased at high prices” Argus Research analyst Taylor Conrad wrote in a note dated Nov. 18. Conrad downgraded the stock to sell from hold.

To recap: One analyst thinks that Carvana is doing very bad, another analyst recently recommended buying Carvana stock and now is not, and another analyst is now suggesting you sell your Carvana stock, which until recently they had recommended that you hang on to. The contradictory signals are what Buffett is talking about with analysts; everyone has an opinion, but no one really knows. Should you invest in Carvana? Well, some analysts on Wall Street have some differing opinions on that.

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