TL;DR

Carvana’s impressive financial performance amid a declining used car market raises concerns about potential accounting manipulation through related party transactions, creating a situation reminiscent of past financial scandals like Enron and the 2008 housing crisis.

Story

“Carvana: A Used Car Salesman with a Shiny New Scheme?” Imagine a used car salesman with a magic wand. He makes his clunkers look like brand new cars, sells them at a premium, and somehow, his books look amazing even though the market is crashing. That’s the story of Carvana, according to some internet sleuths. This online car retailer seems to be defying gravity, with profits soaring while used car prices plummet. But how? A finance expert found something fishy. Carvana is selling cars and loans to related parties, possibly at inflated prices. This could boost Carvana’s numbers artificially, making them look better than they actually are. Think of it like selling lemonade to your mom for $100 a glass. Your lemonade stand looks like a million-dollar business, but it’s all just funny money within the family. The problem? This isn’t a sustainable strategy. Just like the housing crisis of 2008 where risky mortgages were bundled and sold as safe investments, Carvana’s scheme, if true, could eventually collapse, leaving investors holding the bag. Several red flags have been raised: questionable accounting practices, reliance on subprime loans, and a suspicious relationship with a related private company. Carvana and CEO’s father Ernie Garcia II could be using stock sales to cover any losses at the related private entity, and create a profitable illusion. This reminds me of the Enron scandal, where complex accounting tricks masked massive losses, ultimately leading to the company’s downfall. The Carvana situation might not be as extreme, but the underlying principle of manipulating financial statements is eerily similar. Several potential catalysts could expose the alleged scheme, including investigations by financial partners, lawsuits, or whistleblowers. Until then, investors should proceed with extreme caution.

Advice

Don’t be fooled by shiny numbers. Always investigate a company’s underlying business model and related party transactions before investing. Remember, if it sounds too good to be true, it probably is.

Source

https://www.reddit.com/r/wallstreetbets/comments/1i5wk8e/carvana_dd_from_a_senior_finance_manaer/