What happened

For the second day in a row (and for the same reason as the first), shares of used car dealership chain Carvana (NYSE:CVNA) are falling. The's stock's 2.9% lower as of 3:38 p.m. ET Friday, according to numbers provided by S&P Global Market Intelligence, partially bouncing back from what was at one point a 6.5% setback. The 18% pullback from Wednesday's close is the result of profit-taking largely inspired by analyst downgrades.

So what

Piper Sandler analyst Alexander Potter did the deed today, downgrading Carvana stock from an overweight rating to neutral. Potter explains "while recent operational improvements (at low volumes) give us greater confidence in [the company's] ability to reach consistent profitability," but adds "we don't think they warrant a change to our long-term used vehicle market-share expectations." 

His ultimate concern? "It remains to be seen whether [Carvana] can sustain cost discipline at higher volumes [since] several fortuitous factors (some one-time in nature) converged" to drive the company's per-car gross profit sharply higher last quarter.

Fanning the flames of today's pullback is Piper Sandler's new price target. Although Potter did raise his target from $29 to $48 per share, that's still well markedly below the stock's closing price of $55.80 following its 40% surge following the release of second-quarter earnings on Wednesday.

Carvana stock was already a relatively easy target headed into Friday's action though, suffering a similar downgrade from RBC Capital on Thursday. Like Potter, RBC analyst Brad Erickson is concerned that "margin improvements are now likely well/ overly-appreciated." Erickson adds that "a faster (potentially margin-stalling) return to growth is likely necessary to cover debt costs and significant dilution & expanding debt load post-restructure are likely coming."

Now what

For the record, most analysts didn't downgrade Carvana following Wednesday's release of its impressive second-quarter results. On the other hand, the consensus price target is also holding at less than $40 per share, versus the stock's current price near $45. Analysts could have raised this target. They just didn't.

Perhaps the biggest worry for current and prospective Carvana shareholders, however, is that the analyst community is still overly-optimistic on the stock based on hopes that company's recent bullish results means more than they actually do.

See, the used car business is coming out of a proverbial perfect storm of low inventory, low interest rates, willing lenders, and falling wholesale costs. Many consumers can't put off purchasing a new (used) car any longer either, having not done so for the better part of the pandemic. RBC's Erickson and Piper Sandler's Potter aren't coming to long-term conclusions based solely on Carvana's recent performance. Investors would be wise to entertain the same healthy skepticism.