Carvana Co. (CVNA): A Bear Case Theory

We came across a bearish thesis on Carvana Co. on Nemonomics’s Substack by Nick Nemeth. In this article, we will summarize the bulls’ thesis on CVNA. Carvana Co.’s share was trading at $347.56 as of August 8^th. CVNA’s trailing and forward P/E were 86.46 and 69.44, respectively according to Yahoo Finance.

Carvana (CVNA) has surged from near-bankruptcy to a $45+ billion market cap on strong earnings, but its valuation appears disconnected from its fundamentals. Despite being branded as an online used-car dealer, its true profit engine is consumer finance, not vehicle sales. The company originates loans, packages them, and sells them at a premium, with tiny “metal margins” of $400–$500 per car. In 2024, it sold $6.15 billion in loans, generating $541 million in gain-on-sale income, or 26% of gross profit. Most financing flows through Bridgecrest, serving lower-credit borrowers with average FICO scores in the 567–584 range, which allows for higher rates but comes with elevated delinquency risk.

Nearly 80% of customers finance through Carvana, with loans often securitized and sold, while retaining roughly 5% exposure. The business model’s fortunes are tied to credit cycles—when credit weakens, loan buyers retreat, volumes collapse, and balance sheet risk rises, as seen in 2021–22. Unlike brick-and-mortar dealers, Carvana cannot fully capture lucrative service, warranty, and insurance revenue streams, which remain a major profit driver for peers trading at far lower multiples.

Competitors like AutoNation, with steady profitability and broader revenue streams, are valued at a fraction of Carvana’s market cap. With a price-to-book ratio near 30, investors are paying tech-like multiples for a leveraged finance operation heavily exposed to subprime auto credit and securitization markets. Without a defensible moat, Carvana’s valuation hinges on sustained credit market strength, making the risk/reward profile skewed sharply if macro or credit conditions deteriorate.

Previously, we covered a bullish thesis on Carvana Co. (CVNA) by Investing City in May 2025, highlighting its integrated e-commerce platform and operational efficiencies. The stock has risen about 8.5% since, as optimism outweighed macro risks. The thesis still stands on execution strength. Nick Nemeth shares a contrarian view, focusing on Carvana’s reliance on subprime auto finance and credit cycles.

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Disclosure: None.