Carvana Co (NYSE:CVNA) Screens as a Top Growth Stock Using Navellier's System

A systematic method for growth investing can help investors find companies with solid expansion possibilities before they are widely known. One such system comes from Louis Navellier's "The Little Book That Makes You Rich," which lists eight specific rules for choosing leading growth stocks. These rules focus on earnings estimate changes, earnings beats, sales increases, margin improvement, cash flow health, profit growth, profit momentum, and return on equity. When used with a stock screening tool, this method can identify companies showing several positive fundamental traits at the same time.

Carvana Co (NYSE:CVNA), an online platform for buying and selling used cars, recently showed up in a screen using Navellier's system. The company's fundamental numbers match several of the strategy's main needs, suggesting it deserves a more detailed look from investors focused on growth.

Earnings Revisions and Surprises

Navellier points out that rising earnings estimates often mean analysts have good positive signals about a company's future. Carvana shows this with an 8.64% rise in next-quarter EPS estimates over the last three months. More importantly, the company has reported four straight positive earnings beats with an average surprise of 96.22%, well above the strategy's minimum. Consistent earnings beats often lead analysts to increase future estimates, creating positive momentum.

Growth Metrics

The system needs solid sales and profit increases, which Carvana shows in several areas:

• Quarterly sales growth of 41.94% year-over-year
• Yearly sales growth of 39.48%
• Quarterly EPS growth of 814.29%
• Yearly EPS growth of 466.06%

These numbers are much higher than the screening limits and point to solid business expansion. The quickening growth pattern is especially notable as it suggests momentum is increasing, not decreasing.

Profitability and Cash Flow

Improving operating margins show a company is increasing sales without a matching rise in costs. Carvana's operating margin growth of 168.55% is much higher than the strategy's minimum. In the same way, free cash flow growth of 203.36% shows the company's ability to produce cash from operations after capital spending, giving it options to fund future expansion.

Earnings Momentum and Return Metrics

The strategy looks for companies with profit acceleration, where current growth rates are higher than past periods. Carvana's current quarterly EPS growth of 814.29% is much faster than the 125.46% growth from the same quarter one year ago. Also, the company's return on equity of 32.54% is above the 10% minimum, showing good use of shareholder money.

Fundamental Assessment

According to ChartMill's fundamental analysis report for Carvana, the company gets an overall rating of 5 out of 10. The report mentions Carvana's "excellent growth" profile next to "quite expensive" valuation numbers. The company shows special strength in growth numbers (score 8/10) and keeps acceptable financial health (score 6/10), while profitability gets a middle rating (score 5/10). The valuation score of 3/10 reflects high multiples that could be reasonable given the company's outstanding growth path.

Investment Considerations

While Carvana shows several traits liked by growth investors, its valuation needs thoughtful review. The company's price-to-earnings ratio of 84.61 is much higher than the S&P 500 average, though this could be acceptable considering the outstanding growth rates. Investors should watch if the company can continue its present growth path to support these valuations over the long term.

For investors wanting to find other companies that fit Navellier's rules, the complete screening results offer more choices for additional study.

Disclaimer: This article is for informational purposes only and does not constitute investment advice, financial analysis, or recommendation to buy or sell any security. Investors should conduct their own research and consult with financial advisors before making investment decisions.