Carvana (CVNA) is trading sharply higher in Monday’s pre-market session, up about 10%, as investors continue to react to the company’s upcoming addition to the S&P 500 (SPX). The index change takes effect on December 22 and marks a major step in Carvana’s comeback story.
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CVNA stock has rallied about 97% year-to-date. The decision comes after a strong year for Carvana, with better margins, higher sales, and a steady recovery in used-car demand. It also shows growing confidence in the company’s financial health.
SPX Inclusion Is a Big Boon for Carvana
Companies added to the SPX often see their shares surge upon inclusion, as it opens doors to a broader investor base. Both active and passive funds that track the S&P 500 index are required to add these companies to their portfolios, thus increasing demand. To qualify for inclusion, the company must have reported a profit in its most recent quarter and have cumulative profit in the trailing twelve months.
In its Q3FY25 results, Carvana reported Q3 GAAP earnings per share of $1.03, up 61% from a year ago. Excluding the impact of the decline in the value of warrants, the EPS was $1.50 per share. Analysts were expecting adjusted EPS of $1.30 on revenue of $5.11 billion. Also, revenues came in at $5.65 billion, up 55% year-over-year.
Looking ahead, Carvana continues to aim to sell 3 million cars per year at a 13.5% adjusted EBITDA margin within 5 to 10 years. Carvana stated that its guidance assumes the “environment remains stable.”
More Additions and Removals in the S&P 500
Carvana was not the only new entrant. CRH (CRH), a global building materials provider, and Comfort Systems USA (FIX), an HVAC installation and services company, will join the S&P 500 as well.
At the same time, LKQ (LKQ), Solstice Advanced Materials (SOLS), and Mohawk Industries (MHK) will be removed from the index. The changes reflect the S&P 500’s effort to match market trends and keep sector weights balanced.
Is CVNA a Good Stock to Buy?
Overall, Wall Street has a Strong Buy consensus rating on Carvana stock based on 16 Buys and three Holds. The average CVNA stock price target of $432.67 indicates 8.23% upside potential.
