Carvana Co (NYSE: CVNA) saw its stock price improve notably on Thursday, recovering after earlier weakness prompted by a detailed report from Gotham City Research. The research firm accused Carvana of inflating its earnings by over $1 billion for the 2023-2024 period and raised questions regarding the company's dependence on related-party transactions. These allegations have stirred apprehension among investors about Carvana’s financial transparency and stability.
The Gotham City Research report went further to anticipate delays and possible restatements in Carvana’s forthcoming 10-K financial filings, indicating a complex and potentially challenging scenario for the company's financial reporting. This cast uncertainty over the company’s financial outlook in the near term.
In response, a Carvana spokesperson strongly disputed the claims, describing the report as "inaccurate and intentionally misleading." They emphasized that all related-party transactions have been properly disclosed in accordance with regulatory requirements. Furthermore, Carvana reaffirmed its timeline for releasing its 2025 financial results, scheduled for February 18.
Mixed Market Signals Amid a Rebound
The stock’s recent trading patterns illustrate a blend of short- and long-term investor sentiment. Currently, Carvana’s share price sits 4.2% below its 20-day simple moving average (SMA), suggesting some short-term hesitation. In contrast, the stock remains 11.4% above its 100-day SMA, signaling sustained longer-term strength. Over the past year, Carvana’s shares have surged roughly 67%, positioning the stock closer to its 52-week highs rather than its lows.
Technical indicators present a nuanced picture. The Relative Strength Index (RSI) registered at 40.28, a level typically seen as neutral, indicating neither strong buying nor selling pressure. Meanwhile, the Moving Average Convergence Divergence (MACD) remains below its signal line, indicating bearish momentum that tempers the positive aspects. Together, these metrics suggest mixed market momentum as investors assess the conflicting narratives around Carvana.
Key trading thresholds to watch include support near $430.50 and resistance around $485.50, levels that could influence short-term price action depending on broader market sentiment and company developments.
Understanding Carvana’s Business Model and Revenue Streams
Carvana operates as an e-commerce platform facilitating the buying and selling of used vehicles. The company generates revenue primarily through three main streams: sales of used vehicles to consumers, wholesale vehicle sales, and other revenue sources such as sales of loans that Carvana originates and then sells through securitization or directly to financing partners.
Growth Prospects and Analysts’ Outlook
Investor attention is turning towards Carvana’s upcoming earnings report expected in February. Consensus estimates foresee earnings per share (EPS) rising sharply to $1.11, up from $0.56 year-over-year, indicating significant profitability improvement. Revenue is also anticipated to increase substantially, with projections of about $5.24 billion compared to $3.55 billion in the prior year.
The stock currently trades at a price-to-earnings (P/E) ratio of 93.2, reflecting a premium valuation that suggests investors are pricing in strong growth expectations. Supporting this view, the analyst consensus on Carvana is notably positive, with a "Buy" rating and an average price target of $475.67.
Recent analyst activity reinforces this bullish sentiment. JPMorgan recently upgraded its target price to $510 and assigned an overweight rating. Similarly, Wells Fargo raised its price target to $525, and Barclays set an even higher target of $530, all within the past month. These adjustments underscore confidence in Carvana’s potential for continued expansion.
Analysts rationalize the elevated valuation by expecting almost 98% earnings growth, lending support to the view that Carvana’s growth trajectory justifies the premium multiple.
Benzinga Edge Rankings and Stock Performance Metrics
According to the Benzinga Edge scorecard, Carvana exhibits notable strengths in growth and momentum, registering a growth rank of 98.15 and momentum rank of 87.45, both well above market averages and indicating strong performance potential. However, the value rank is at 10.8, reflecting the premium price investors pay relative to comparable companies.
On the trading day in question, Carvana’s shares climbed 3.48%, trading at approximately $422.43 at the time of reporting, as measured by Benzinga Pro data.
Summary of Current Factors Affecting Carvana
- The company faces serious allegations regarding earnings overstatement and reliance on related-party transactions, contributing to investor uncertainty and scrutiny.
- Carvana’s leadership denies these claims, asserting full disclosure and providing a timeline for upcoming financial disclosures.
- Analysts largely maintain a bullish outlook based on projected earnings growth and revenue expansion, supporting higher price targets despite the controversy.
- Technical market indicators display mixed momentum, with longer-term strength offset by short-term bearish signals.
Risks and Uncertainties
- The accuracy of Carvana’s financial reporting remains in question due to Gotham City Research’s allegations, posing a risk of future restatements or delays in filings.
- Dependence on related-party transactions may introduce financial stability risks if these relationships face scrutiny or regulatory challenges.
- Technical indicators suggest potential downward pressure in the short term, which could affect stock price volatility.
- High valuation metrics expose the stock to risks if anticipated growth does not materialize as expected.