Investing.com -- JPMorgan analysts said investors should "buy on weakness" when it comes to Carvana (NYSE:CVNA) shares, following a recent short report by Hindenburg Research.
The firm acknowledged the concerns raised by short-seller Hindenburg but maintained an Overweight rating on the stock, emphasizing Carvana’s financial fundamentals and broader industry trends.
The Hindenburg report focuses on Carvana's gross profit per unit (GPU), particularly "Other GPU and related practices around related party transactions for loan sales and warranty," highlights the investment bank.
JPMorgan (NYSE:JPM) agrees that Carvana could improve transparency on these metrics but notes that "our own work through has not suggested any red flags," particularly regarding gain-on-sale accounting and free cash flow (FCF).
Broader concerns about auto credit performance are also addressed. While auto loan defaults and delinquencies remain a risk, JPMorgan highlights that these issues are "more macro than CVNA" and that the industry has seen improvements as it moves past problematic originations from 2021-2022.
Stabilized used car prices and steady unemployment rates are said to further support Carvana’s position.
JPMorgan dismisses other items highlighted, saying these are "known unknowns that investors have been cognizant of, and have absorbed over the last several years."
Instead, the firm recommends focusing on "EBITDA/unit and FCF" rather than non-GAAP metrics like GPU/SG&A.
Ultimately, the analysts believe Carvana’s fundamentals remain intact despite the controversy. They suggest that the short report’s claims do not materially alter the company’s prospects, noting that "concerns around broader auto industry defaults/losses are legitimate and CVNA is not immune, though this is far from new news."