Carvana Stock Volatile After Hindenburg Short Report That Alleges Accounting Manipulation: Retail Mood Deflates
By Stocktwits Inc | First Published Jan 2, 2025, 11:26 PM ISTHindenburg said its research uncovered $800 million in loan sales to a “suspected undisclosed” related party and details on how accounting manipulation and lax underwriting fueled temporary reported income growth.
Used-car retailer Carvana Co.’s ($CVNA) shares remained volatile on Thursday as traders digested the details of a short report, with retail sentiment also dimming.
At last check, Carvana stock was down 0.89% at $201.55, although recovering from a low of $186.86 (down 8.12%) hit immediately after the report's release. The stock traded in a $186.86-$212.89 range intraday.
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In a report entitled “Carvana: A Father-Son Accounting Grift For Ages,” and released Thursday, short-seller Hindenburg Research said the company’s turnaround is a “mirage.” The firm said the view is based on its research undertaken over the past four months.
The research uncovered $800 million in loan sales to a “suspected undisclosed” related party and details on how accounting manipulation and lax underwriting fueled temporary reported income growth.
Hindenburg also noted that insiders continued to cash out. It said that CEO Ernie Garcia III’s father sold $3.6 billion of the stock between Aug. 2020 and Aug. 2021 and that the year after he stopped selling, the stock plunged, and bankruptcy concerns loomed large.
Later, Carvana touted a bright future, and despite the stress in the used auto market, the company reported three consecutive quarters of modest positive net income since 2023, the firm said.
It noted that Garcia III has resumed selling stock since April 2024, disposing of $1.4 billion in shares
The stock has gained 284% in 2024.
Delving into Carvana’s valuation, the firm said the stock traded at an 845% higher sales multiple relative to peers CarMax, Inc. ($KMX) and AutoNation, Inc. ($AN). On a forward earnings basis. the stock was trading at a 745% premium , it added.
Also, the firm called out Carvana’s relationship with Ally Financial, Inc. ($ALLY)
“For customers, they face the prospect of inferior or potentially dangerous cars due to cost-cutting measures favoring the bottom line over quality and safety,” Hindenburg said.
“For shareholders and debtholders, we expect they are in for rough times ahead,” it added.
On Stocktwits, retail sentiment toward Carvana worsened from ‘bearish’ a day ago to ‘extremely bearish’ (9/100), the lowest in a year. Retail chatter grew louder amid the short report, rising to ‘extremely high’ levels.
Retail echoed the views of Hinderburg, saying the “Garcias will leave shareholders with nothing.”
Another was left bewildered by a lack of negative reaction to the report.
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