After a stellar 2024, which saw Carvana's CVNA stock skyrocket over 300%, the online used-car e-retailer had a tumultuous start in 2025. Shares of CVNA have seen wild price action after Hindenburg Research disclosed a short position in the company last Thursday. The stock dropped below $200 on Jan. 2 for the first time since October, and extended losses on Jan. 3, plunging to $177. However, CVNA rebounded on Monday after the announcement of a significant $4 billion loan deal with Ally Financial ALLY, with gains continuing yesterday. Amid sharp volatility, investors are left wondering how they should approach Carvana now.

Hindenburg’s Allegations on CVNA: Unmasking the "Mirage"

From being on the verge of bankruptcy and trading below $5 at the end of 2022, CVNA has staged a fairy tale comeback. In the span of just a couple of years, the company went from a pandemic darling on the brink of collapse to an e-commerce powerhouse driving record profits. However, Hindenburg described this recovery as a mirage driven by unreliable loans and manipulative accounting. 

Hindenburg Research’s report paints a grim picture of Carvana’s financial practices. According to the firm, Carvana is bending accounting rules to delay losses and shift income across reporting periods. The accusation suggests that Carvana’s financial health might be weaker than it appears on the surface.

The allegations don’t stop there. Hindenburg claims that Carvana’s auto loan business, a significant revenue driver, is fraught with risk. The loans are often extended with lax underwriting standards. The report claims almost half of the loans are "underwater," meaning the car's value is less than the loan balance. These risky loans are then bundled and sold as securities to investors, presenting an illusion of profitability.

Hindenburg highlighted $800 million in loan sales to what it described as a "suspected undisclosed related party." This, coupled with accusations of manipulating delinquencies through loan extensions, raises red flags about Carvana’s transparency and governance.

Deal With ALLY Offers Respite to CVNA

Amid these allegations, Carvana managed to secure a significant deal with Ally Financial to sell up to $4 billion in auto loan receivables. This agreement, announced on Jan. 6, reinforces a critical partnership for Carvana. The move comes after Hindenburg’s report suggested Ally was stepping back from its relationship with Carvana, which appears to have been an overstatement.

The deal not only alleviates concerns about Carvana’s ability to market its loans but also signals confidence from a major financial institution. Following the announcement, CVNA shares rebounded, underscoring the market’s optimism about the company’s ability to navigate challenges.

Broker Sentiment on Carvana Stays Optimistic

Despite the turmoil, major brokers remain optimistic about Carvana’s prospects. RBC Capital upgraded the stock to "Outperform" from "Sector Perform," with a price target of $280, calling the recent sell-off an opportunity. Similarly, JPMorgan and Wedbush dismissed Hindenburg’s claims as exaggerated and lacking new substance, maintaining their bullish ratings.

Carvana’s Wall Street average price target of $262.63 implies a potential upside of more than 30% from current levels. Out of the 19 analysts covering the stock, eight have a "Strong Buy" or "Buy" rating, and 11 have a “Hold” rating, suggesting continued confidence in the company’s long-term prospects.

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CVNA’s Turnaround Strategy Positions it Well

Carvana’s strategic pivot from aggressive growth to operational efficiency has been a key factor in its recent success. The company’s three-step plan—achieving positive adjusted EBITDA, increasing EBITDA per unit and returning to growth with a leaner model—has yielded tangible results. It consistently beat bottom-line estimates in the first three quarters of 2024.

Retail sales volumes have also been on the rise, with over 100,000 cars sold in each of the last two reported quarters. CVNA expects a sequential improvement in the year-over-year growth rate in retail units sold in the fourth quarter of 2024.

Image Source: Carvana Co.

Cost reductions in reconditioning and inbound transportation, along with expanded revenue streams from value-added services, have bolstered gross profit per unit. These improvements reflect Carvana’s focus on streamlining operations and enhancing profitability.

Image Source: Carvana Co.

Carvana Still a Buy

While the Hindenburg report introduces some uncertainty and indicates that short-term volatility may continue, these could prove to be temporary setbacks rather than lasting issues. Investors with a long-term view and a tolerance for volatility may find value in accumulating shares at discounted levels. Carvana’s resilience and operational improvements suggest it’s well-equipped to weather this challenge. Despite the noise from Hindenburg, key metrics like rising sales, improved cost structures and expanding profit margins signal the company is on the right track.

CVNA currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

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