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This Week's Exclusive Article Carvana Drops 14% After $1B Accounting AllegationsReported by Jeffrey Neal Johnson. Date Posted: 1/29/2026. 
Summary - Carvana achieved record financial results in the third quarter, driven by surging revenue growth and its highest-ever operating income and profit margins.
- Operational improvements from integrating the auction network have streamlined logistics and enabled faster delivery for many retail customers.
- Wall Street analysts raised their price targets and maintained positive ratings following the earnings report, citing strong cash flow and debt reduction.
Carvana Co. (NYSE: CVNA) shares experienced extreme volatility in the last days of January 2026. The stock tumbled roughly 14%, trading near $408 per share and erasing a large portion of its gains from earlier in the year. The sudden drop surprised many investors because it followed the company's record-breaking third-quarter financial results. The catalyst for the sell-off was a new report from short seller Gotham City Research. The report alleges material accounting irregularities and undisclosed financial dependencies between Carvana and related entities controlled by the Garcia family. The situation has split the market: some investors see improving fundamentals and stronger cash flow, while others see potentially risky related‑party transactions. The key question now is whether the pullback signals structural problems or a discounted buying opportunity. Smoke and Mirrors? Analyzing the Accounting Claims As the U.S. approaches a major national milestone in 2026, some analysts are closely watching how existing executive authorities could influence economic policy and capital flows.
In a new briefing, a former government advisor outlines why a little-discussed statute is drawing renewed attention and how certain actions taken next year could have meaningful implications for markets and long-term investors. The presentation focuses on historical context, preparedness, and what to understand before events unfold. See the full briefing here The Gotham report centers on Carvana's relationships with companies controlled by the Garcia family. Ernest Garcia II, the father of Carvana CEO Ernest Garcia III, controls DriveTime Automotive Group and Bridgecrest, and Gotham alleges that Carvana overstated earnings for 2023–2024 by more than $1 billion through transactions with these entities. A focal point of the allegations is GoFi, LLC. Financial documents for GoFi show that nearly 100% of its 2024 revenue—about $7.1 million—came from gains on the sale of finance receivables. Gotham contends this suggests GoFi primarily exists to move loans and capital between corporate entities rather than operate as an independent business. The report also challenges the idea that DriveTime serves as a stable financial backstop for Carvana. DriveTime's 2024 statements show a cash burn from operating activities exceeding $900 million between 2022 and 2024, indicating it has been raising debt to fund its own operations rather than generating surplus cash to support Carvana. Another allegation concerns loan valuations. Carvana records a Gain on Loan Sales when it sells customer loans to third parties. Gotham claims Carvana sold loans to Bridgecrest at inflated prices to book immediate gains, while Bridgecrest later marked down those same assets by up to 15%—about $900 million in 2024—potentially shifting losses from Carvana's public books to the private books of related parties. Carvana pushed back in an emailed statement, calling the allegations "inaccurate and intentionally misleading," and saying all its "related‑party transactions are accurately disclosed in our financial statements." Ignoring the Noise: Carvana's Record Financials Despite the allegations, Carvana's recent operating performance is strong. In its Q3 2025 earnings report, the company posted record revenue of $5.65 billion, a 55% year‑over‑year increase. More importantly, Carvana reported GAAP operating income of $552 million and Adjusted EBITDA of $637 million, an 11.3% margin—the best on record for the company. Those metrics indicate the core business of buying and selling cars is generating meaningful profit irrespective of the complex loan accounting. The company has also materially repaired its balance sheet, addressing prior bankruptcy concerns. At the end of the third quarter, Carvana reported: - Cash on Hand: Over $2.1 billion
- Debt Reduction: Retired approximately $1.2 billion in corporate debt over the last two years
- Leverage Ratio: Reduced to 1.5x, a level generally considered healthy for a growth company
Operational improvements are also visible to customers. After integrating the ADESA auction network acquired in 2022, Carvana has streamlined logistics in the retail automotive sector, enabling same‑day or next‑day delivery for 40% of sales in the Phoenix market. Those physical efficiencies are tangible advantages that are harder for critics to dismiss. The Smart Money Vote: Price Targets Head Higher Wall Street's initial reaction suggests some institutional investors are looking past the short‑seller report. Following the Gotham release and the Q3 results, several major analysts raised price targets on Carvana. JPMorgan kept its Overweight rating and raised its target to $510, while Wells Fargo lifted its target to $525. Those moves indicate analysts view the related‑party complexity as manageable and are prioritizing Carvana's ability to generate free cash flow and win market share. When analysts raise targets during a sell‑off, it is often read as a vote of confidence that the market reaction is overdone. The Tail Risks: Auditors and Subpoenas Still, meaningful risks remain. Gotham notes that Grant Thornton audits Carvana, DriveTime and GoFi, which critics say could present a conflict of interest or weaken the appearance of independent oversight when the same firm audits related parties on both sides of transactions. The report also references an SEC subpoena from June 2025 about these matters. That is the most significant near‑term risk: regulatory scrutiny could lead to restatements, enforcement actions or changes in business practices. Such outcomes could pressure the stock regardless of operational progress. Crisis or Opportunity? Weighing Risk Against Reward Carvana is a high‑risk, high‑reward investment. The stock trades at more than 90 times trailing earnings, a valuation that typically invites sharp volatility. It is not suitable for conservative investors who cannot tolerate double‑digit daily swings. For risk‑tolerant investors, the recent pullback may present an opportunity. The shares traded in the $400–$410 range, well below the recent 52‑week high of $486 and below new analyst targets above $500. If Carvana can address questions around DriveTime and GoFi and sustain its operational momentum into 2026, the market could quickly reprice the shares higher. The retail engine appears to be running well, but investors must be prepared to weather potential regulatory and accounting turbulence to capture the upside.
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