Carvana shares rose sharply on Monday after S&P Dow Jones Indices said the company would be added to the S&P 500 later this month, placing the online used car retailer among some of the most closely watched U.S. stocks. The stock rose about 11 percent during intraday trading, crossing $445 before paring gains.
The company will join the benchmark index on December 22, becoming part of the consumer discretionary group. Its inclusion reflects a sustained improvement in profitability and market value after a period in which lenders and investors openly questioned Carvana’s survival.
At the end of 2022, the company was facing liquidity issues amid lower vehicle demand and significantly higher cost of capital. Carvana shares briefly traded below $4 and a large proportion of its shares were sold short as doubts grew about its ability to refinance debt.
Since then, the retailer has cut operating expenses, renegotiated portions of its loans and redirected investments toward areas that more directly support its online model. These measures have helped increase profits per vehicle sold and enabled the company to generate positive profits annually for the first time.
Carvana reported record revenue and record units sold in the third quarter. The company has maintained its goal of achieving annual sales of approximately 3 million vehicles over the next decade, implying continued market share gains against traditional used car chains.
Bank of America analysts, who raised their price target on Monday, said the company now meets index admission requirements related to earnings and liquidity. They highlighted continued progress against CarMax, the largest US competitor, particularly in attracting customers willing to buy and sell vehicles entirely through digital channels.
According to recent revelations, more than 30 percent of Carvana shoppers now complete their purchases without direct staff interaction until the vehicle is picked up or delivered. More than 60 percent of sellers use a similar process only online.
Entry into the S&P 500 is likely to expand the pool of institutional owners. Index-tracking funds are required to buy stocks, and Carvana’s presence in passive investment products can improve stock rotation and reduce reliance on short-term speculative trading.
The move also puts the business under greater scrutiny from fund managers who assess corporate governance, leverage and consistency of profitability more intensely once companies enter major benchmark indices. Carvana ended last year with its first consolidated annual profit, but remains exposed to financing conditions and fluctuations in the affordability of used cars.
Analyst coverage has changed markedly in the last two years. Eighteen companies now recommend buying shares, compared to only a small number of bullish opinions during its crisis. Six companies advise holding the shares and two continue to recommend selling them.
Carvana CEO Ernie Garcia acknowledged the difficult period preceding the recovery and characterized the past two years as a test of resilience for the business. The addition of the index underlines the magnitude of the rebound, although sustained financial discipline will be required to sustain it as growth ambitions expand.
Also read: Dollar Tree and Dollar General Stock Outperform Nvidia This Year