We came across a bearish thesis on Carvana Co. (NYSE:CVNA) on wallstreetbets Subreddit Page by High-Voltage-. In this article, we will summarize the bears’ thesis on CVNA. Carvana Co. (NYSE:CVNA)’s share was trading at $177.16 as of Jan 3rd. CVNA’s trailing and forward P/E were 54.03 and 88.50 respectively according to Yahoo Finance.
A row of used cars with shoppers inspecting them on a lot.
Hindenburg Research has once again provided a compelling report, digging into Carvana’s financials and uncovering troubling issues, including questionable accounting practices and concerns surrounding the company’s debt structure. Their analysis calls attention to the cracks in Carvana’s façade, casting doubt on the sustainability of its business model. When JP Morgan rushed to defend Carvana, it raised alarm bells. Banks don’t rush to protect stocks out of goodwill; JP Morgan’s defense indicates a deeper concern about their exposure to Carvana’s debt. The situation feels eerily reminiscent of the housing bubble, when banks tried to downplay the risks of subprime mortgages until the inevitable collapse. On top of this, sell-side analysts, often seen as complicit in supporting the companies they finance, have been reluctant to highlight the risks Carvana faces, raising questions about their motivations. With rising interest rates, tightening credit, and a decline in demand for used cars, Carvana is facing significant headwinds. The company has been burning through cash at an alarming rate, and its ability to weather these challenges is in doubt. While some may hope for a short-term rally, the reality is that institutional investors are quietly hedging their bets, loading up on puts and credit default swaps as the stock’s fundamentals continue to deteriorate. In summary, Hindenburg’s report adds weight to the bearish thesis, JP Morgan’s defense signals concern over their exposure, and Carvana appears poised for further struggles in the near term.
Carvana Co. (NYSE:CVNA) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 66 hedge fund portfolios held CVNA at the end of the third quarter which was 61 in the previous quarter. While we acknowledge the risk and potential of CVNA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVNA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.