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Patrick T. Fallon / Bloomberg via Getty Images
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Carvana stock slid Thursday after short-seller Hindenburg Research revealed a short position in the company.
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The firm said Carvana’s significant turnaround in 2024 is a “mirage” built in part on selling its customer loans.
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Hindenburg also criticized Carvana insiders, namely Chief Executive Officer Ernie Garcia III’s father, for selling off chunks of the company’s stock.
Shares of Carvana (CVNA) slid Thursday as short-selling firm Hindenburg Research disclosed a short position in the online used-car retailer.
Carvana stock nearly quadrupled in value in 2024 due to rising demand for used cars—a huge turnaround after bankruptcy concerns hurt the company’s share price in previous years—but Hindenburg called the success a “mirage.”
The firm on Thursday accused Carvana of selling its customer auto loans to third parties “largely in the risky subprime and deep subprime space.” Hindenburg claims to have uncovered $800 million in loan sales to an unidentified “related third party” and said that nearly 26% of the company’s gross profit over the past nine months was due to such loan sales.
Carvana disputed the findings.
“The arguments in today’s report are intentionally misleading and have already been made numerous times by other short sellers seeking to benefit from a decline in our stock price,” a Carvana spokesperson said in an emailed statement. “We plan to stay focused on executing our plan for another great year in 2025.”
In October, Carvana reported third-quarter earnings per share (EPS) nearly triple the expectations of analysts surveyed by Visible Alpha and raised its full-year outlook. Analysts on average are similarly bullish: The roughly $255 consensus price target represents about a 28% premium over Carvana’s Thursday close of just under $200.
Hindenburg also took aim at insiders cashing in on the company’s stock surge, including CEO Ernie Garcia III’s father, Ernest Garcia II. The elder Garcia sold $3.6 billion in stock between August 2020 and August 2021, prior to the share price’s low period in 2022 and 2023, and sold an additional $1.4 billion over the past year as the stock recovered, Hindenburg said.
Shares of Carvana finished down almost 2% Thursday.
UPDATE: This article has been updated to include comments from Carvana.
Read the original article on Investopedia
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