Jamie Spencer
Carvana (CVNA) shares continued to decline on Friday following a short-selling report from Hindenburg Research, which raised concerns about the used-car retailer’s financial practices. Despite the negative attention, JPMorgan analysts maintained their “overweight” rating on Carvana, expressing confidence in the company’s fundamentals.
Hindenburg Report Sparks Concerns
Hindenburg Research alleged that Carvana’s financial performance was artificially inflated through questionable loan sales. The short-seller firm claimed Carvana sold $800 million worth of consumer auto loans to an unidentified “related third party” over the past nine months, accounting for nearly 26% of the company’s gross profit during that period.
These claims have raised alarm bells about transparency and governance at the company, adding pressure to Carvana’s stock performance.
JPMorgan Defends Carvana
In contrast to Hindenburg’s findings, JPMorgan analysts expressed confidence in Carvana’s operations. While they acknowledged that the company could improve its disclosure practices, they found no evidence to support the claims of financial misrepresentation.
“We do not see CVNA’s reported economics as inflated,” JPMorgan analysts wrote in a note, adding that the issues surrounding auto loan defaults are not new and that demand for used cars remains robust.
The analysts emphasized that their research had not uncovered any red flags regarding Carvana’s gross profit per unit or its loan sales.
Market Reaction
Carvana shares fell nearly 5% intraday Friday, compounding a 2% loss on Thursday following the release of Hindenburg’s report. Despite this recent dip, Carvana’s stock has surged in 2024, nearly quadrupling in value as the company rebounded from bankruptcy fears that had plagued it in prior years.
Loan Sales Under Scrutiny
One of the key points in Hindenburg’s report was the claim of $800 million in auto loan sales to a related third party, raising questions about transparency. JPMorgan acknowledged the need for greater clarity but did not view the transactions as inherently problematic.
Conclusion: Diverging Views on Carvana
The short-selling report from Hindenburg has reignited concerns about Carvana’s financial practices, but JPMorgan’s endorsement suggests confidence in the company’s fundamentals and growth prospects. As Carvana navigates this scrutiny, investor sentiment will likely hinge on the company’s ability to provide more transparency and maintain its strong performance in the competitive used-car market.
