Carvana Co. (CVNA): A Bear Case Theory

 We came across a bearish thesis on Carvana Co. on Waterboy Stocks’s Substack by Waterboy Stocks. In this article, we will summarize the bulls’ thesis on CVNA. Carvana Co.'s share was trading at $360.03 as of October 9th. CVNA’s trailing and forward P/E were 98.19 and 60.61 respectively according to Yahoo Finance.

Carvana (CVNA), led by the father-son duo Ernie Garcia Sr. and III, has a long history of controversial financial maneuvers that now appear to be catching up with the company. From Garcia Sr.’s early fraudulent activities in the 1980s, including bank fraud and questionable real estate transactions, to the public and private dealings of Ugly Duckling in the 1990s, the family has consistently relied on aggressive, high-risk strategies to generate wealth. These practices appear to have influenced Carvana’s current operations, where Ernie Garcia III has pursued rapid subprime auto lending growth, often accompanied by complex related-party transactions and accounting practices that inflate reported sales and earnings.

Notably, Carvana allegedly entered into sham deals with DriveTime, accounting for a substantial portion of its 2021 unit sales growth, while the company has been accused of delaying loan sales to manipulate quarterly earnings—a classic “cookie jar” tactic. Compounding these risks, Carvana’s audit committee chairman, Ira Platt, has longstanding financial ties to the Garcias, raising governance concerns. Despite sporadic stock buybacks and announcements of strong quarters, the company’s fundamentals remain vulnerable, with high delinquency rates in subprime auto loans and over $4.5 billion in debt maturing over the next decade.

Regulatory scrutiny is intensifying, with the SEC issuing a subpoena in June and investors pursuing lawsuits for alleged pump-and-dump schemes. The combination of aggressive financial engineering, questionable governance, and mounting debt suggests that Carvana faces significant downside risk. Investors and creditors alike are exposed to potential losses, making CVNA a high-risk entity with limited protection against market and regulatory pressures, particularly as its reliance on the volatile subprime lending market continues to underpin profitability.

Previously we covered a bullish thesis on Carvana Co. (CVNA) by Investing City in May 2025, which highlighted the company’s vertically integrated e-commerce platform, strong financing capabilities, and operational efficiencies aimed at long-term profitability. The company's stock price has appreciated by 12.4% since our coverage, reflecting partial execution of its growth strategy. The thesis still stands as Carvana’s logistical scale and data-driven platform remain valuable. Waterboy Stocks shares a contrarian perspective but emphasizes governance risks, historical financial missteps, and rising regulatory scrutiny that could pressure CVNA’s performance.

Carvana Co. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 91 hedge fund portfolios held CVNA at the end of the second quarter which was 90 in the previous quarter. While we acknowledge the potential of CVNA as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.