I’ve found a stock that meets all my criteria. It has great fundamentals, and the technicals have all lined up. 

So I started building a position in Carvana Co. (CVNA). 

CVNA is operating in one of the fastest-growing industries in the world, where it has a substantial total addressable market. CVNA operates an e-commerce platform for buying and selling used cars in the United States. CVNA is growing revenue at a significant clip. Furthermore, we’ve seen auto-related stocks such as Avis Budget Group (CAR) and Hertz (HTZ) make significant moves in recent weeks, lighting up the auto sector.

Here’s how I’m trading it: 

Now let me explain the reasoning behind the trade:

Fundamentals

Carvana Co., together with its subsidiaries, operates an e-commerce platform for buying and selling used cars in the United States. Its platform allows customers to research and identify a vehicle; inspect it using the company’s 360-degree vehicle imaging technology; obtain financing and warranty coverage; purchase the vehicle; and schedule delivery or pick-up from their desktop or mobile devices.

Last quarter CVNA had over 100% year-on-year growth from $1.54 billion to $3.48 billion. If the growth continues, there is no reason CVNA can’t break through $320 and make new all-time highs $400+. 

Carvana (CVNA) is operating in one of the fastest-growing industries in the world, where it has a substantial total addressable market. It is estimated that the used car e-commerce market represents only 1% of the total used car market in the US. Given that the new generation is accustomed to making most of their purchases online, I expect this figure to grow significantly over time. 

The company also has an advanced artificial intelligence technology that scans auctions and buys the hottest-selling cars to resell them in the future. This helps the company to keep the most popular cars in its inventory and offer them to buyers at a higher price. For sellers, the company offers a fast and efficient service: when the seller enters their VIN (Vehicle Identification Number) into the system, they receive an offer within 15 minutes; this eliminates some of the anxiety of car selling. 

Technicals

On the bigger picture daily chart, CVNA is building a base above the $280 level. The last time the stock made an all-time high, the swing moved $150 from $220 to $370 low to high. A measured move from $280 could put $430 in play over the longer term on a break-out to new all-time highs.

In the shorter-term time frame, $320 is a level of interest. It was a previous level of interest turned support. If CVNA can hold the base it is making, I think it could squeeze over $320 soon.

The Trade

I’ve been building a position in options over the last few days. I have been buying the $285 calls, which expire next week. My plan is to trim some of these and roll into new calls a couple of weeks further out. A close below $280 would stop me out, and I am looking for a move above $320.

Bottom Line

Carvana Co. (CVNA) is one of my favorite stocks at the moment. The fundamentals are great. 

Revenue is growing, and I believe the e-commerce car sales sector will gain market share over legacy dealerships as people become more accustomed to buying and selling their cars directly online. 

The chart setup is great as well, with CVNA making a nice base which, if it holds, could lead to a significant up move in the near term. I am actively building a call position in CVNA, looking for a near-term move towards $320.