Is CVNA a good stock to buy? We came across a bearish thesis on Carvana Co. on Temple 8: The Architecture of the Future’s Substack by Temple 8 Research. In this article, we will summarize the bears’ thesis on CVNA. Carvana Co.’s share was trading at $300.97 as of March 24th. CVNA’s trailing and forward P/E were 33.29 and 40.65 respectively according to Yahoo Finance.
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Carvana Co., together with its subsidiaries, operates an e-commerce platform for buying and selling used cars. CVNA reported a headline blowout in Q4 2025, with revenue of $5.60 billion beating estimates and EPS of $4.22 far exceeding expectations, yet the stock fell over 20% post-earnings as the market focused on deteriorating fundamentals beneath the surface.
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Despite strong unit growth, profitability is beginning to compress at a critical juncture, with gross profit per unit (GPU) declining sequentially and adjusted EBITDA margins falling from 10.1% to 9.1%. This erosion is particularly concerning for a company priced on the expectation of expanding operating leverage, as rising reconditioning costs and accelerating vehicle depreciation signal structural pressure rather than temporary volatility.
The quality of earnings further weakens the narrative, as nearly $685 million of reported profit stemmed from a one-time non-cash tax benefit, masking stagnant operating income despite 58% revenue growth. This suggests Carvana’s growth is increasingly dilutive, with the company selling more vehicles but generating less profit per unit.
Simultaneously, tightening conditions in auto financing are exacerbating risks, as Ally Financial reduced its loan purchase commitment and shifted toward higher-quality originations, forcing Carvana to offload riskier loans at inferior economics, compressing its high-margin financial GPU.
Concerns are amplified by allegations from Gotham City Research regarding undisclosed related-party transactions and overstated earnings, alongside ongoing insider selling and institutional exits. With both “metal” and “financial” GPU under pressure, Carvana faces a scenario where unit economics deteriorate on both fronts. As credit conditions tighten and subprime delinquencies rise, the company’s reliance on gain-on-sale margins becomes increasingly fragile, raising doubts about its ability to service upcoming interest obligations and sustain its valuation.
Previously, we covered a bullish thesis on Carvana Co. (CVNA) by Investing City in May 2025, which highlighted the company’s vertically integrated model, financing strength, and improving profitability through efficiencies. CVNA’s stock price has depreciated by approximately 6.03% since our coverage. Temple 8 Research shares a contrarian view but emphasizes on GPU compression, weakening margins, and rising financial risks.
Carvana Co. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 100 hedge fund portfolios held CVNA at the end of the fourth quarter which was 109 in the previous quarter. While we acknowledge the risk and potential of CVNA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVNA and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
