Polarizing activists short seller Hindenburg Discovery – known for Bomb report Including alleging corporate fraud and other wrongdoing by companies Nicola Corporation NASDAQ: NKLA and India’s Adani Group—published on January 2, 2025, An essay About its latest target: Carvana Co. NYSE: CVNA.
Caravan today
(as of 11:04 AM ET)
- 52-week range
- $40.21
▼
$268.34
- P/E ratio
- 19,501.50
- Price target
- $229.18
In the report, Hindenburg alleges that the $44-billion online car dealer’s stock is set to rise 284% in 2024, which some investors have hailed as a turnaround after fears of bankruptcy in 2022 and 2023, a “Mirage” is At the core of the Hindenburg report is an allegation that Carvana engaged in accounting manipulation and lax loan underwriting to give the appearance of revenue growth in recent quarters. As is its custom, Hindenburg also announced at the time of the report’s release that it had entered into a short position of an undisclosed size in CVNA shares.
Accusations of questionable loan sales and inflated top- and bottom-line performance
Hindenburg claims $800 million in debt sales to a “suspicious undisclosed related party” has been identified because Carvana’s prepurchase commitment agreement with Ally Financial has not been fully disclosed to outsiders in recent years. Carvana sold $3.6 billion in vehicle loans to Ally in 2023, representing about 60% of its total originations. However, sales to Ally during the first three quarters of 2024 fell to about 35% of Carvana’s revenue, or $2.2 billion for the period.
The Hindenburg report suggests that the unnamed buyer of an additional $800 million in loans due in the first quarter of 2024 is likely a trust linked to Cerberus Capital — that company’s chairman of global investments, Dan Quayle, is a Carvana director.
Additionally, Hindenburg claims that Carvana’s model focuses on non-prime and subprime loans and that its “toxic loan book is the result of lax underwriting standards,” resulting in more than $15.4 billion in asset-backed securities that that the car dealer has issued. The report also suggests that 60-day delinquencies among Carvana borrowers are four times higher than the industry average.
The report alleges that Carvana used accounting “games” to give the appearance of strong revenue and profit performance. These included the use of loaner extensions and various manipulations using Drivetime (a dealership run by Carvana’s CEO’s father), including profit-share agreements between the two companies and extended Carvana warranties. Includes a history of offloading costs. Additional inventory for DriveTime. The report also cited a former Carvana executive who claimed the company would manipulate revenue figures by keeping loan sales in the quarterly line.
Meanwhile, Hindenburg alleged that Carvana’s CEO and his father had timed the market with incredible precision, earning them billions in sales of Carvana shares.
Appraisal and loan concerns
The Hindenburg report also indicates that investors may have potential concerns about Carvana even without accounting for its alleged “grift.” At the time of the report’s release, Hindenburg said Carvana traded at an 845% premium. Its companions 754% premium on 1-year forward P/S basis and 1-year forward P/E basis. The firm had net debt of $4.8 billion at the end of September 2024, with annual cash interest payments of $215 million beginning in February 2025 based on long-term debt obligations. Additionally, Carvana’s credit rating of B- is also the lowest among its peer companies.
Carvana Company (CVNA) price chart for Friday, January, 3, 2025
Carvana: Overview, Business Model, Bankruptcy Fears
Founded in 2012, Carvana is an online car dealer that operates a platform through which individual customers can buy and sell used cars. Activity on this platform makes up the vast majority (about 70%) of the company’s business by revenue, with other operations including services such as insurance, financing, and protection plans. Finally, Carvana operates a wholesale auction business called ADESA. Carvana had its IPO in 2017.
In a recent investor presentation, Carvana noted that its operations cover more than 81% of the US population, with more than 45,000 vehicles available for sale as of September 30, 2024.
Nevertheless, the company has recently experienced concerns about potential bankruptcy. In September 2023, for example, it The aim is to reduce the debt by 1.3 billion dollars As part of a larger restructuring effort. That, along with efforts to achieve positive EBITDA and nearly triple its retail vehicle gross profit per unit from September 2022 to September 2024, likely helped drive a significant rally over the past several months.
As of January 3, 2025, Carvana had yet to issue a press release addressing the Hindenburg Report.
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