Carvana Co. (NYSE:CVNA) shares initially opened lower Monday before surging over 6% after Kerrisdale Capital said it is short the company's shares.
The firm claimed "Carvana is insolvent," and its "equity is worthless," in a tweet thread linking to its short report.
Carvana is "nothing more than a poorly run auto retailer," they added, stating that it will never generate sustainable positive cash flow until its debt is equitized.
Kerrisdale also attacked Carvana's ability to be profitable, arguing that it "has never produced profitable growth," and even during the pandemic when demand soared, interest rates were low, and used car prices were high, the company couldn't generate consistent profits.
"With $6b of high cost bonds, negligible "adj" EBITDA, significant capex, shrinking revenue (down -25% y/y) and dwindling liquidity, $CVNA is destined for a debt restructuring," said Kerrisdale. "CVNA's competitive differentiation is gone. Multiple, formidable competitors offer substantially similar services. At the same time, $CVNA has been forced to charge more fees, offer fewer cars, and acquire more brick-and-mortar assets to help generate profits."