Leverage and Debt Maturities
Carvana’s capital structure is highly leveraged, posing a major concern for investors. As of December 31, 2023, the company carried roughly $6.3 billion in total debt obligations (www.sec.gov), a burden that significantly encumbers its balance sheet. Key components of this debt include:
- Senior Secured Notes – $4.4 billion: These are newly issued notes (some with payment-in-kind interest features) that Carvana exchanged for older unsecured bonds. This figure includes about $185 million of accrued PIK interest rolled into the principal (www.sec.gov). These secured notes are backed by substantially all of Carvana’s assets and carry high interest rates (some coupons ranging from ~9% to ~14% with PIK features) as part of the debt restructuring in 2023.
- Remaining Unsecured Notes – $205 million: Following a major debt exchange in 2023, only a small portion of the original unsecured bonds remain outstanding (e.g. a fragment of the 5.625% notes due 2025) (www.sec.gov). The bulk of Carvana’s bond debt was converted into the secured notes due 2028–2031, reducing near-term unsecured maturities.
- Floor Plan & Receivable Facilities – $668 million: This is drawn debt used to finance vehicle inventory and customer loans (finance receivables) (www.sec.gov). Floor plan lines are asset-backed and critical for Carvana’s operations (similar to a revolving credit line to buy car inventory).
- Finance Lease Obligations – $267 million: Carvana finances certain equipment and facilities via leases that are treated as debt (www.sec.gov). These obligations require fixed payments and contribute to the overall leverage.
- Secured Borrowing on Securitized Assets – $293 million: Carvana packages customer auto loans into securitizations but retains a portion of those (“beneficial interests”). This $293 million is debt secured by those retained interests (www.sec.gov).
- Sale-Leaseback Debt – $485 million: Carvana has raised cash by selling some real estate (like inspection or vending facilities) and leasing them back. Accounting-wise, these create long-term debt of $485 million on the balance sheet (www.sec.gov). It’s essentially borrowing money secured by real estate assets.
Debt Maturity Profile: Thanks to the 2023 debt exchanges, Carvana pushed out most bond maturities beyond the next few years, but a wall of obligations looms later. The aggregate principal maturities of Carvana’s major debt (excluding the revolving facilities and leases) are as follows (www.sec.gov):
- 2024: ~$108 million due (mostly current portions of various facilities). - 2025: ~$183 million due. - 2026: ~$59 million due. - 2027: ~$62 million due. - 2028: ~$1.013 billion due (a huge jump as the first tranche of new 2028 Secured Notes will mature) (www.sec.gov). - Thereafter (2029+): ~$3.751 billion due beyond 2028 (www.sec.gov). This includes the bulk of the Senior Secured Notes maturing in 2030 and 2031, which were issued in the restructuring, and any other long-dated financings.
The above schedule highlights that Carvana faces relatively light debt repayments until 2028, but then very large obligations afterward. The company effectively bought itself time with the exchange – reducing the near-term default risk – but at the cost of saddling itself with higher interest rates and a massive balloon of debt down the line. Management even noted the exchanges “significantly reduced near-term cash interest expense” at the cost of more debt outstanding later (www.sec.gov). Investors should be aware that Carvana will likely need to refinance or repay over $1 billion in 2028 and nearly $3.8 billion thereafter, a daunting challenge if the business does not substantially turn around by then (www.sec.gov).
Interest Coverage & Cash Flow
Carvana’s ability to service its debt is a serious concern. In 2023, the company’s interest expense surged to $632 million, up from $486 million in 2022 (www.sec.gov). This $146 million jump was “primarily due to increased interest” on the new high-rate Senior Secured Notes (www.sec.gov). To put this in context, $632 million is a significant burden – roughly 5.9% of Carvana’s $10.8 billion in 2023 revenue, and far exceeds the company’s operating profit (which was negative on a normalized basis).
- Negative Coverage: Carvana has not generated positive EBIT in recent years, so traditional interest coverage ratios (EBIT/interest) are <1 – effectively no earnings cover the interest obligations. Even in 2023, Carvana reported a small net income only because of a one-time $878 million accounting gain from extinguishing debt (www.sec.gov). Excluding that unusual gain, Carvana still had a substantial operating loss. This means the company’s cash flows from operations are not sufficient to pay its $600+ million of annual interest. In fact, Carvana has been funding interest and losses by drawing down cash and liquidity.
- Cash Burn and Liquidity: At year-end 2023, Carvana had about $530 million in cash on hand (www.sec.gov). It also had roughly $1 billion of unused borrowing capacity on committed credit facilities, for total liquidity of ~$1.5 billion (www.sec.gov). While that sounds like a cushion, continued cash burn and interest costs could erode this quickly. The company did manage to achieve positive Adjusted EBITDA in 2023 (about $300+ million, or a 3% margin) after aggressive cost cuts, which is a silver lining. However, even that cash-profit measure is roughly half of the annual interest expense. Carvana’s own risk disclosures warn that its “substantial indebtedness” makes it difficult to fulfill obligations and could hamper operations (www.sec.gov). If business performance doesn’t improve substantially, Carvana may eventually face liquidity pressure – raising the specter of further debt restructuring or the need for new capital.
- Coverage Outlook: Going forward, interest expense will remain very high (and could even grow if PIK interest accrues). Carvana did reduce near-term cash interest outlays by doing the exchange (some interest can be paid-in-kind), but this simply defers the pain. The company’s viability hinges on improving operating cash flow to meet these obligations. For now, interest coverage is inadequate, and Carvana is essentially relying on its cash buffers and asset-based loans to sustain operations. This financial fragility is a critical risk for shareholders.
Valuation and Peer Comparison
Carvana’s stock price has often traded more on sentiment and speculation than on fundamentals. After plunging to around $4 per share in late 2022 amid bankruptcy fears, CVNA staged a stunning comeback – rising over 1,000% in 2023 and a further 284% in 2024 as traders piled in on hopes of a turnaround (www.prnewswire.com). By mid-2025, Carvana’s shares even notched a new all-time high, more than 100× above their 2022 lows (www.bloomberg.com). This breathtaking rally dealt a ~$7 billion blow to short sellers and briefly gave Carvana a market capitalization in the tens of billions – outstripping some industry peers (www.bloomberg.com). However, the rally far outpaced the company’s financial reality, leading many observers to argue Carvana was wildly overvalued (www.bloomberg.com).
Price-to-Sales and EV/EBITDA: With Carvana still generating net losses, traditional valuations like P/E are not meaningful. Analysts often look at Price/Sales or EV/EBITDA for such companies:
- At its late-2024 peak, Carvana’s enterprise value (market value plus debt) was on the order of ~3–4× its annual sales – a rich multiple for a distressed retailer. In contrast, CarMax (KMX) – the largest used-car dealership chain which is consistently profitable – traded at closer to 0.5× sales in that period. For example, in fall 2025 CarMax’s market cap was around $8–9 billion (www.marketcapwatch.com) on ~$30 billion revenue (P/S ~0.3), whereas Carvana’s market cap (including super-voting shares) and ~$11 billion revenue implied a much higher ratio. This discrepancy underscored the speculative premium in Carvana’s stock pricing.
- On an EV/EBITDA basis, Carvana also looks stretched. Even using 2023’s adjusted EBITDA (~$334 million), the stock at lofty levels was trading at dozens of times EBITDA – whereas healthy auto retail peers might trade near single-digit multiples. Investors have essentially been pricing Carvana as a high-growth tech/retail disruptor rather than a debt-laden auto seller. This optimism may be misplaced if growth remains stagnant or if margins don’t ramp up significantly.
- It’s worth noting that Carvana’s share count is large and somewhat complex. There are ~109 million Class A shares outstanding, but the founding Garcia family holds ~79 million Class B shares/LLC units (convertible into Class A) that carry 10:1 voting power (www.sec.gov). When considering valuation, one should include those in the fully diluted share count (over 180+ million shares total). Thus, a $20 share price equates to roughly a >$3.6 billion effective market cap, and higher prices scale quickly in market value. Always use a fully diluted basis when comparing Carvana’s valuation to peers.
Bottom Line: Carvana’s stock has been driven by story and momentum. The narrative of revolutionizing car sales and hopes of a turnaround led to sky-high valuations untethered from fundamentals, according to skeptics (www.bloomberg.com). Now, with the stock well off its peaks and losses accumulating, valuation may begin to reflect reality. Investors should be cautious of volatility – Carvana has been both a high-flyer and a crash victim, and swings of 10–20% in a day are not uncommon on news. Comparative fundamentals (like vastly better profitability at CarMax or other auto retailers) suggest Carvana should trade at a substantial discount, not premium, to peers – but the market has oscillated between fear and euphoria on this name.
Risks and Red Flags
Investing in Carvana entails elevated risks, given the company’s fragile financial condition, control by insiders, and a history of controversies. Here are some key risk factors and red flags for shareholders:
- Heavy Debt & Solvency Risk: Carvana’s “substantial indebtedness” could impair its flexibility and even its ability to meet obligations (www.sec.gov). Over $6 billion in debt sits on the company (many at high interest rates), which significantly increases the risk of insolvency if performance falters. Large debt maturities are looming in a few years (over $1 billion due in 2028, and $3.7 billion thereafter (www.sec.gov)), raising concern about how Carvana will refinance or pay this in the future. In short, the bankruptcy risk is non-negligible if the business doesn’t dramatically improve or debt holders won’t extend terms.
- Continued Losses & Cash Burn: Despite some operational improvements, Carvana has a history of significant net losses (over $2.8 billion loss in 2022 alone) and only achieved positive net income in 2023 via an accounting gain (www.sec.gov). Core operations are still in the red, and generating positive free cash flow remains a challenge. If economic conditions or sales volumes slip, Carvana could quickly return to large losses, consuming cash. The company may need to raise additional capital to fund operations or debt service. Management acknowledges that **if they must raise equity or convertible debt, existing shareholders would face “significant dilution” (www.sec.gov). This dilution risk is very real – past financings have already diluted shareholders, and more could come.
- Controlled by Insiders (Governance Risk): The company’s founders, Ernest Garcia III (CEO) and Ernest Garcia II, effectively control ~87% of voting power** through super-voting Class B shares (www.sec.gov). The Garcia family can elect all board members and dictate any shareholder vote. Such control means public investors have little say in governance. The Garcias’ interests may not align with minority shareholders – as the 10-K warns, their control could result in decisions that benefit themselves at others’ expense (www.sec.gov) (www.sec.gov). This is a classic “controlled company” scenario, where checks and balances are fewer. Moreover, the Garcias own DriveTime Automotive (a large used-car dealership and finance company) independently, which directly overlaps with Carvana’s business (www.sec.gov). This related-party situation poses conflict-of-interest risks – for example, Carvana has done business with DriveTime. There is no guarantee the Garcias won’t prioritize DriveTime or other interests over Carvana’s public shareholders.
- Related-Party Dealings & Accounting Red Flags: Recent reports have shined a spotlight on Carvana’s transactions with entities controlled by the Garcias. In January 2025, Hindenburg Research published a report titled “Carvana: A Father-Son Accounting Grift For The Ages,” alleging that Carvana’s apparent turnaround was built on aggressive accounting maneuvers (www.prnewswire.com). The focus was on whether Carvana failed to properly disclose benefits and dealings with related parties (like DriveTime) that boosted its reported earnings (www.prnewswire.com). Then in early 2026, Gotham City Research (another short-seller) accused Carvana of overstating its 2023–2024 earnings by about $1 billion through undisclosed perks from businesses owned by the Garcia family (finance.yahoo.com). Gotham’s report even suggested Carvana might delay filing its annual 10-K report due to these issues (finance.yahoo.com). These are serious allegations – if true, they imply Carvana’s financial statements may not be reliable. At minimum, the company is under scrutiny for transparency in its accounting. Shareholders should treat such claims seriously: a failure to resolve them could lead to regulatory investigations or restatements.
- Regulatory and Legal Troubles: Carvana has encountered regulatory sanctions for its business practices in the past. Notably, in 2022 Carvana’s dealer license was suspended in Illinois after authorities found the company was “violating Illinois laws, misusing out-of-state registration tags and failing to transfer vehicle titles in a timely manner.” (abc7chicago.com) Several other states’ motor vehicle departments issued warnings or temporary bans when Carvana’s rapid growth outpaced its compliance (customers complained of long delays in receiving car titles and registrations). These incidents highlight lax operational controls – a red flag for management quality. Any ongoing pattern of non-compliance could erode customer trust and invite further regulatory penalties. Additionally, the above-mentioned accounting issues have already prompted shareholder lawsuit investigations. For example, Hagens Berman and other law firms announced investigations in 2025 and are encouraging Carvana investors who suffered losses to come forward (www.prnewswire.com). This could snowball into class-action litigation if evidence emerges that Carvana misled investors.
- Macroeconomic & Industry Risks: Carvana is highly exposed to used-car market conditions. Rising interest rates and high inflation have hurt demand for used vehicles, as customers face higher financing costs (www.sec.gov). During 2022–2023, Carvana saw sales volumes drop partly because consumers were squeezed by expensive car loans and economic uncertainty (www.sec.gov). If interest rates remain elevated (making car payments less affordable) or if a recession hits, Carvana’s revenues could decline further. Another factor is used car pricing volatility: Carvana’s margins can be hit hard if used car prices fall suddenly (as CarMax experienced in late 2025 (www.axios.com)), forcing Carvana to write down inventory values. The industry is cyclical, and Carvana doesn’t have the financial cushion of a larger firm – it’s vulnerable to macro swings. Finally, competition is mounting (not only from traditional dealers like CarMax, but also other online platforms and new entrants). Any erosion of Carvana’s market share or pricing power would compound its challenges.
In sum, Carvana presents a high-risk profile. The combination of financial leverage, insider control, operational hiccups, and external allegations creates a precarious situation. Investors should be extremely diligent and aware that this stock could suffer severe downside (even the risk of zero in a worst-case insolvency scenario) if these risks aren’t mitigated.
Open Questions for Shareholders
With Carvana at a crossroads, shareholders and observers are left with pressing open questions. These uncertainties will determine whether Carvana can recover or if investors need to seek recourse for their losses:
- Can Carvana Achieve Sustainable Turnaround? The core question is whether Carvana can truly turn profitable and self-sustaining. After years of expansion-at-all-costs followed by drastic cost cuts, is there a viable business model that generates positive cash flow? Carvana’s gross profit per vehicle improved in 2023 and operating expenses were reduced – but will those gains hold if the company tries to grow sales again? Management has touted initiatives (like improving unit economics, selling older inventory, and leveraging its ADESA auction acquisition) to boost profitability. The open question is whether these efforts will yield consistent net income, or if Carvana will slip back into losses in a competitive, margin-thin industry.
- How Will the Debt Bomb Be Defused? In just a few years, Carvana faces over $1 billion due in 2028 and another ~$3.7 billion due by 2030–31 (www.sec.gov). If the turnaround is real, Carvana might be able to refinance those obligations in a healthier state. But if not, how will the company handle this debt bomb? Will it need to pursue another out-of-court exchange or an in-court restructuring (bankruptcy) to reduce debt? This is crucial for stockholders: in a restructuring, shareholders could be wiped out. Even Carvana’s own filings acknowledge the risk that additional financing may not be available when needed (www.sec.gov). Investors should watch for any moves in the next 1–2 years – such as refinancing deals, asset sales, or capital raises – that indicate how Carvana plans to address its wall of maturities.
- Will Further Dilution Occur? Closely tied to the above: Carvana may choose (or be forced) to raise equity capital to bolster its balance sheet. Given the stock’s volatility, any significant share issuance could severely dilute current shareholders’ stakes. As noted, the Garcia insiders have a strong incentive to maintain control, so they might prefer debt or convertible instruments over straight equity issuance (to avoid reducing their voting power). However, if cash runs low, an equity raise (or convertible bond) might be inevitable. This open question is essentially “Can Carvana survive on existing liquidity, or will it tap the markets again – and on what terms?” Shareholders should be prepared for the possibility of secondary offerings or private investments that could dilute ownership (the company has done this before, e.g. issuing new shares/LLC units to the Garcias in prior financings (www.sec.gov)).
- Outcome of Investigations – What Are Shareholder Rights? Both Hindenburg and Gotham have levied serious claims about Carvana’s accounting and disclosure practices. These are under investigation by law firms on behalf of investors (www.prnewswire.com) (www.prnewswire.com). An open question is: Will these investigations or potential regulatory probes find evidence of wrongdoing? If Carvana did fail to disclose material related-party transactions or engaged in accounting tricks, there could be consequences ranging from financial restatements to SEC enforcement. Shareholders’ rights come into play here – if you bought CVNA stock and suffered losses due to misrepresentations, you may have legal recourse. Class-action lawsuits could emerge seeking recovery for investors if Carvana is found to have violated securities laws. For example, Hagens Berman’s investigation specifically “urges investors…who suffered substantial losses to submit their losses” for a potential case (www.prnewswire.com). The outcome is uncertain: Carvana denies any fraud, but the resolution (or lack thereof) of these allegations will significantly impact shareholder confidence and rights. Will Carvana need to improve its governance and transparency? Will it potentially settle claims or face penalties? These questions remain unanswered for now.
- How Will the Garcia Control Influence the Future? With the founding family firmly in control, another question is whether Carvana’s leadership will act in the best interest of all shareholders going forward. For instance, if Carvana’s situation worsens, the Garcias could consider strategic alternatives – such as taking the company private (which they could attempt given their voting control), or spinning off assets like ADESA. Public shareholders would have limited say in such decisions. The open concern is whether an outsider-friendly outcome (e.g. an acquisition of Carvana at a premium, or governance changes to protect minority investors) is possible, or if the status quo will persist. Essentially, are minority shareholders “along for the ride” with whatever the Garcias choose to do? This dynamic feeds into the valuation as well – some investors may discount CVNA stock because of the control risk, while others might speculate the Garcias will find a way to drive the stock back up.
- Market Volatility – When Will it Settle? Lastly, the extreme volatility in Carvana’s stock raises the question of when (if ever) the price will stabilize around a level justified by fundamentals. CVNA has at times traded more like a meme stock or a short-squeeze target than a typical company. A 10,000% rise from trough to peak and frequent double-digit percentage swings are not normal for a company of this size (www.bloomberg.com). For current shareholders, this volatility is a double-edged sword: it offers trading opportunities but also massive downside risk. Will the market eventually reach a more sober appraisal of Carvana (reducing wild swings), or will speculation continue to dominate the share price? The answer likely hinges on Carvana delivering consistent financial results – stability in the business would lead to a more stable stock. Until then, investors should brace for turbulence.
Know Your Rights: In conclusion, investors who have incurred losses in CVNA should stay informed. You have the right to ask tough questions on earnings calls, vote on shareholder proposals (though the Garcias have majority vote, institutional pressure can still matter), and if you suspect fraud, you have the right to pursue legal action. The recent alerts from law firms indicate that shareholders are exploring their legal rights in light of Carvana’s stock plunge (www.prnewswire.com). If you feel materially wronged as an investor, consider reaching out to those investigations – it’s important to assert your rights if misleading statements were a factor in your losses. Carvana’s story is still unfolding, and while the company fights to right the ship, shareholders must look after their own interests and stay aware of the risks. Always conduct thorough due diligence and, when in doubt, consult a financial advisor or legal counsel about your specific situation. The road ahead for Carvana is uncertain, but armed with knowledge of the facts and your rights, you can make better decisions in the face of that uncertainty.
