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Shares of Carvana (CVNA -11.22%) were heading lower today as investors continued to respond to a short report from Hindenburg Research that accused the online used car dealer of not disclosing related-party transactions, among other things.
Carvana, which has gotten frothy after skyrocketing from near-bankruptcy, fell 11% on the news.
Image source: Carvana.
Carvana faces more questions
In a lengthy report yesterday, Hindenburg said the company’s turnaround was a “mirage,” and noted $800 million in loan sales to a suspected undisclosed related party, as well as accounting manipulation and unscrupulous underwriting that has unjustly inflated the stock price. Hindenburg also pointed out that the stock trades at a much higher multiple than peers like CarMax and AutoNation.
Hindenburg is fresh off a successful takedown of Super Micro Computer, which is now several months late on filing its 10-K, and the stock has tumbled since Hindenburg’s short report.
Carvana told Bloomberg that the charges were “misleading and inaccurate” and echoed similar claims made by other short-sellers.
JPMorgan Chase also said that Carvana should be on the sell-off, though it said the company could do a better job of providing transparency around its gain-on-sale economics. The investment bank also noted that its earnings before interest, taxes, depreciation, and amortization (EBITDA) per unit is unusually inflated, though it reiterated an overweight rating on the stock.
What’s next for Carvana?
Carvana’s recovery from trading for less than $5 and nearly bankrupt at the end of 2022, to $268 a share a few weeks ago, has been nothing less than dramatic.
Along the way, Carvana’s valuation has soared as well, and it’s trading at a forward P/E above 100. Unlike the attack on Super Micro Computer, there don’t appear to be any direct consequences of a delayed filing.
Still, the report is likely to lead to increased scrutiny on the company. Investors should keep an eye on the issue, but also remember that Hindenburg’s argument doesn’t have to be right for it and other short-sellers to make money.
JPMorgan Chase is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in Carvana. The Motley Fool has positions in and recommends CarMax and JPMorgan Chase. The Motley Fool has a disclosure policy.
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