Shares of Carvana (CVNA, Financial) fell 11.22% today following a critical short report by Hindenburg Research. The report accused Carvana of undisclosed related-party transactions and other irregularities, sparking a notable drop in the stock price.
Hindenburg's investigation described Carvana's recent turnaround efforts as a "mirage," emphasizing $800 million in loan sales to a potentially undisclosed related party. The report also raised concerns about accounting manipulation and underwriting practices, which may have contributed to artificially inflating CVNA's stock price. Moreover, the report noted that Carvana trades at a higher multiple compared to industry peers like CarMax and AutoNation.
In response, Carvana dismissed these allegations as "misleading and inaccurate." This is not the first time similar accusations have been made against CVNA, as previous reports from short-sellers have raised comparable issues.
JPMorgan Chase has echoed sentiments of caution, suggesting a sell-off of Carvana stock, while also noting that the company has room for improvement in transparency regarding its gain-on-sale economics. Despite maintaining an overweight rating on CVNA, JPMorgan highlighted that Carvana's EBITDA per unit is notably high.
Notably, Carvana's journey from near bankruptcy in 2022 to its recent peak share price of $268 has been quite striking. Although there are no immediate repercussions akin to those experienced by companies like Super Micro Computer, the Hindenburg report may lead to increased scrutiny over Carvana's operations.
On the valuation front, Carvana is considered "Significantly Overvalued" according to its GF Value, with a GF Value of $37.79. Carvana is currently trading at $177.16, suggesting a substantial premium over its GF Value. The company's current market capitalization stands at $22.77 billion. Despite a strong Piotroski F-Score of 8 and a solid Altman Z-Score of 4.33, indicating financial strength, CVNA faces challenges concerning its higher Price-to-Book ratio of 36.68 and issues with revenue per share decline over the past three years.
From a financial perspective, Carvana's balance sheet shows a high level of long-term debt issuance amounting to $2.4 billion over the last three years, though it maintains a robust inventory turnover ratio of 8.47. Investors should be aware of the company's insider selling trend, with 21 transactions in the past three months, and no buying activity recorded.
As Carvana navigates these turbulent waters, potential investors may want to keep a close eye on further developments and consider the implications of both the financial strengths and weaknesses before making investment decisions.
