Carvana (CVNA) stock has rallied more than 300% over the past year, driven by the online used-car retailer’s improving financials and turnaround efforts under the leadership of CEO Ernie Garcia III. However, yesterday, short-seller Hindenburg Research disclosed a bet against CVNA stock and alleged that the company’s turnaround is a “mirage,” which is being fueled by accounting manipulation and lenient underwriting practices. Despite the pullback in CVNA shares following the accusations, analysts at JPMorgan and BTIG remain bullish on the stock and see continued upside potential.
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It is worth noting that in the report titled “Carvana: A Father-Son Accounting Grift For The Ages,” Hindenburg Research made several accusations and questioned the company’s loan sales practices and the business relationship between CEO Ernie Garcia III and his father, Ernest Garcia II, who is CVNA’s largest shareholder.
JPM and BTIG Remain Bullish on CVNA
Following Hindenburg Research’s report, JPMorgan analyst Rajat Gupta reiterated a Buy rating on Carvana stock with a price target of $300. The analyst noted that the major company-specific concern that Hindenburg Research highlighted was the unrealistic gross profit per unit (GPU), specifically Other GPU and related practices surrounding related party transactions for loan sales and warranty.
However, he thinks that the other major issue, which is auto loan defaults, is a broader concern related to the industry. Gupta added that several other issues highlighted in Hindenburg’s report were uncertainties that investors have been aware of and have “absorbed” over the last several years. Interestingly, JPMorgan’s own research did not reveal any red flags. That said, Gupta believes that the company can provide more disclosure and transparency.
Likewise, BTIG analyst Marvin Fong reaffirmed a Buy rating on CVNA stock with a price target of $295. Fong thinks that many issues raised in the Hindenburg Research’s report were already covered by other short sellers previously, including falling used car prices, issues related to credit quality, and securing favorable terms from related parties. “While plausible questions are raised at times, we find other arguments unconvincing,” said Fong.
Is CVNA a Good Stock to Buy?
Overall, Wall Street is cautiously optimistic about Carvana stock, with a Moderate Buy consensus rating based on seven Buys and nine Holds. The average CVNA stock price target of $247 implies about 38% upside potential.
