Core Viewpoint - Carvana Co. (NYSE:CVNA) is facing scrutiny regarding its financial health, particularly in light of recent bankruptcy filings in the subprime auto lending sector, leading to a significant drop in its stock price [1][2] Group 1: Financial Health Concerns - Jim Chanos, a prominent short seller, raised concerns about Carvana's financial stability, citing "lots of red flags" following the bankruptcy of Tricolor Holdings, a subprime auto lender [1] - The stock of Carvana fell by 13% on October 22, indicating market reaction to these concerns [1] Group 2: Analyst Perspectives - Needham analyst Chris Pierce believes that the fears surrounding subprime auto loans are exaggerated and reaffirmed a Buy rating on Carvana with a price target of $500, suggesting over 50% upside potential from current levels [3] - Pierce argues that the headwinds affecting Other Gross Profit per Unit (GPU) are temporary and already accounted for in his estimates, indicating a stable environment for long-term investors [3] - Carvana's high volatility profile is noted, with a beta of 3.6, suggesting significant price fluctuations [3]

Core Insights - Carvana's primary sources of operating cash flows include retail and wholesale vehicle sales, originated loans, and complementary products, while cash uses involve inventory purchases, personnel expenses, and customer acquisition costs [1] Financial Performance - In 2024, Carvana generated $918 million in cash from operating activities, up from $803 million in 2023, marking a $115 million year-over-year increase driven by improved operating performance and a $274 million reduction in interest paid due to higher paid-in-kind (PIK) interest [2][10] - The company reported record annual revenues and significant profitability milestones in 2024, with expectations for sequential growth in retail units sold and adjusted EBITDA in the second quarter [3] Financing Activities - Carvana also generates cash through financing activities, which totaled $261 million in 2024, down from $868 million in 2023, reflecting strategic shifts in financing [4][10] - Historically, these financing activities have supported the company's growth and market expansion, a trend expected to continue [4] Market Performance - Carvana's stock has outperformed the Zacks Internet – Commerce industry, with shares surging 65.4% year-to-date compared to the industry's growth of 11.4% [8] Valuation - From a valuation perspective, Carvana appears overvalued, trading at a forward price/sales ratio of 3.46, higher than the industry's 2.17 [12] EPS Estimates - The Zacks Consensus Estimate for 2025 and 2026 EPS has increased by 5 cents and 8 cents, respectively, in the past week [14]