Carvana posts record fourth-quarter results, but the stock is still not a buy

Caravanna (CVNA) just delivered a blockbuster by 2025, with record annual revenue of $20.3 billion, up 49% year-on-year, in addition to net profit of $1.9 billion and a whopping 596,641 retail units sold, up 43%. The fourth quarter was also stellar, with revenue of $5.6 billion (58% growth), 163,522 units sold (43% increase) and net income of $951 million. Management guidance points to even stronger performance in 2026, fueled by operational efficiencies and market share gains toward a long-term target of 3 million annual units.

Still, investors are dumping the stock, sending the stock plummeting as a fourth-quarter miscalculation of adjusted EBITDA of $511 million versus expectations of about $536 million, and dragged down by rising reconditioning costs that have eroded gross profit per unit by $244 to $6,427. If you’re still tempted to jump into this dip, proceed at your own risk; there are deeper problems lurking beneath the surface.

Shadows of short seller research

Since then, a lingering cloud has overshadowed Carvana Gotham City Investigation released a damning report last month claiming that there had been undisclosed related party transactions that masked a much worse financial condition than was publicly reported. The allegations focused on Carvana’s loan sales, indicating heavy reliance on entities linked to CEO Ernie Garcia III’s family, including DriveTime and its subsidiary Bridgecrest.

In its recent earnings call, Carvana management dismissed these claims, particularly about its related-party loan sales, saying it had refuted them as “100% false.” But Gotham fired back with an update yesterday, claiming it has “on-the-record evidence” from public records showing Bridgecrest is the lien holder on dozens of vehicles sold by Carvana, contradicting official statements. They identified 34 specific VINs where Bridgecrest holds the liens, and highlighted how Carvana initially finances the sale before servicing loans that ultimately go to these affiliates. This setup, Gotham argues, increases profits on loan sales while maintaining opacity.

Vulnerable dependencies and financial opacity

Gotham’s latest revelations portray Carvana’s third-party dependencies as more uncertain than acknowledged, with leverage ratios potentially reaching 20x in key financing arms, increasing risks in a volatile market. The company’s originate-to-sell model funnels loans into securitizations, but the lack of transparency around servicers like Bridgecrest raises red flags.

Investors continue to question the true health of Carvana’s balance sheet, especially as subprime loan renewals in securitizations have doubled recently. This ambiguity is not just academic; it undermines trust, especially when short sellers provide verifiable data that challenges management’s story.

In short

Much of Carvana’s sales engine relies on subprime borrowers, with more than 44% of loans originated classified as non-prime and a significant portion deep subprime, contributing approximately 26% of gross profit through loan sales.

But delinquencies on subprime auto loans have reached a 32-year high, with rates of more than 60 days delinquencies at levels unprecedented since 1994, due to extended terms to 120 months, high loan-to-value ratios and loose credit terms. Borrowers are trapped in negative equity and face repossessions that could flood the market.

With financially distressed buyers at the core of Carvana’s high-risk customer base, and unresolved questions about its finances remaining, this former market darling remains far too risky for investors to buy and should steer clear of it until management provides more clarity.