Wednesday, 8 January 2025
by BD Banks
Shares of Carvana (NYSE: CVNA) were climbing for the second day in a row today after Wall Street analysts continued to line up behind the stock after a short-seller attacked it last week.
As a result, the online used car dealer stock was up 7% as of 11:02 a.m. ET.
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Image source: Carvana.
Last week, short-seller Hindenburg Research attacked the company, saying that Carvana had undisclosed related-party transactions and that the stock was grossly overvalued. It called the stock’s recovery “a mirage.”
After the stock fell sharply on Friday, it’s bounced back over the last two sessions, as Wall Street analysts have largely stood by the stock, especially after it renewed an agreement with Ally Financial to buy up to $4 billion of its loan receivables over the next year, showing that relationship remains sound.
This morning, RBC Capital upgraded the stock from sector perform to market perform, with a price target of $280, calling the sell-off an opportunity, and it sees its gross profit per-unit levels as sustainable.
JPMorgan said its research had not uncovered any red flags and maintained an overweight rating on the stock. Similarly, Wedbush said there was no smoking gun in Hindenburg’s report, calling its claims exaggerated and old news. Finally, Needham called the short thesis “misplaced,” and maintained a buy rating with a $330 price target.
It’s easy to see why Carvana would attract the attention of a short-seller. The stock has surged since its bottom at the end of 2022, slashing costs through layoffs and refinancing, and returning the business to profitability after years of rapid but unprofitable growth and overextending itself with acquisitions.
The company is now profitable on a generally accepted accounting principles (GAAP) basis, with operating income of $337 million, and posted revenue growth of 32% to $3.66 billion.
There don’t appear to be any red flags following the short-seller report, and Carvana called Hindenburg’s claims “intentionally misleading and inaccurate.”
The Ally deal should give investors confidence that Hindenburg’s charges are largely overblown. Carvana stock is expensive, making it vulnerable to a pullback, but its growth rate and improving margins justify a premium.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Ally is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in Carvana. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.