Short Attacks: Carvana (CVNA) & FTAI Aviation (FTAI)
Forensic Alpha’s analysis finds an overlap of several issues highlighted in Hindenburg Research’s meaty report on CVNA “A Father-Son Accounting Grift for the Ages” - in particular related-party transactions with DriveTime and off-balance sheet risk. Commenting on Muddy Waters' new short report on FTAI, they note that using transfers to inflate profits within a “prize division” is a common shenanigan - Forensic Alpha recently raised similar concerns around CRH and Volkswagen. Their own analysis of FTAI classifies the stock as “High Risk”.
Edition: 203
- 24 January, 2025
Investor Idea Event highlights several exciting opportunities
Revelare hosted a Buyside Event in London where long theses were shared for the following companies: DSV based on an acquisition of Schenker; BFF Bank on an upcoming regulatory approval from The Bank of Italy; Adyen beating consensus estimates; DO & CO lapping capex investments and seasonality; Carvana transitioning to a growth stock with potential for 500% upside; and FTAI Aviation stock doubling from growth and execution. A short thesis was also presented for Edenred which focused on accounting issues and tech disintermediation. Please contact us if you would like to discuss any of these ideas in more detail.
Edition: 199
- 15 November, 2024
Do you worry about stocks at 50x earnings?
According to Trivariate's analysis, companies that reach 50x price-to-forward earnings for the first time in 3 years consistently see their multiples begin to contract on average back to 37x earnings 12 months after the initial “eclipse”. Although the data suggests that there is no need to panic sell, it does appear that beginning 6-to 9-months later, the odds of outperformance start to deteriorate. Unless earnings explode to the upside, Trivariate’s advice would be to trim these positions 6 months after the initial eclipse of 50x earnings occurs. Recent examples of companies joining the “50x” club include Costco, Carvana, Albermarle and Iron Mountain.
Edition: 199
- 15 November, 2024
Consumer Discretionary
The share price has shot up on each of the past two quarterly prints, overtly challenging and even completely ignoring, what Brian McGough thinks is a compelling short thesis. However, CVNA's trends have gone in the opposite direction vs. other used car dealers and Brian is seeing some extremely questionable accounting. Specifically, peak profit per unit while pulling back on virtually all discretionary costs. If the company is going to scale to ~3x the unit volumes, when will it actually deploy incremental capital to do so? This "dream the dream" scenario, which is fully priced into the stock, can only happen if it invests to get there. But it's doing the opposite. Brian sees 90% downside.
Edition: 186
- 17 May, 2024
Consumer Discretionary
On the surface, the fact that CVNA significantly narrowed its EBITDA loss in 1Q23 was very impressive. And the fact that management is saying the company could be EBITDA positive in Q2 is quite amazing. How is this happening? Management is dramatically shrinking the business; marketing has been cut to the bone and Q1 capital expenditures were $32m vs. $220m LY. The flipside is that CVNA still recorded a net loss of $286m. Interest expense was $159m vs. $64m LY. Total gross debt was >$6.5bn. Douglas’ cash flow projections still assume CVNA will need additional outside debt in 2023. Bottom line, this is still a financing tightrope act. 12-month TP $5.00 (60% downside).
Edition: 160
- 12 May, 2023
Consumer Discretionary
Race against time - faces a material slowdown right when the company is desperately trying to right-size costs, boost GPU per unit and improve cash flow to address a mountain of debt. Ironically, slower sales volume may ease some of the cost pressures, but Douglas Arthur still envisions a large 3Q EBITDA loss and a FY loss of over $1bn with FCF to be a negative $2bn. At this rate, Douglas believes management will somehow have to tap the debt markets for over $2bn of capital in 2023, further straining the financials. Does not expect CVNA to be EBITDA positive until 2026E.
Edition: 147
- 28 October, 2022
Short model portfolio outperforms by 31%
26 out of New Constructs’ 32 ideas outperformed in 1H22 with an average return of -50% compared to a 19% decline for the S&P 500. Underscoring just how important reliable fundamental research is in turbulent markets, their model portfolio has beaten the S&P by an even wider margin (48%) since the start of 2021. Top performers have been Coinbase, Carvana, Peloton, Snap, Beyond Meat and Lyft. As we enter 2H22 high conviction shorts include Netflix, Uber, Shopify and Robinhood.
Edition: 140
- 22 July, 2022
Consumer Discretionary
Another profitless prosperity stock - Tom Chanos sees no way to scale the business. FRPT has been unprofitable for 10 straight years, 2022 will make it 11. Margins are collapsing even with price hikes; burns cash like crazy (latest offering only buys them c.9 months); and much bigger competitors, no barriers to entry. Selling expensive pet food in a recession is a bad place to be. TP $25 (50% downside). Other short ideas initiated by Tom over the last year include Peloton, Carvana and Coinbase.
Edition: 139
- 08 July, 2022
Solvency Risk Model: Best short candidates
Carvana (CVNA) - Cash burning, high capex and weak earnings. $5bn of net debt before Adesa acquisition and forced to accept some expensive debt terms to finance the deal.
Life Time Group Holdings (LTH) - Low on cash and not slated to produce excess cash flows any time soon. Estimates are being cut aggressively. Short interest is high at 15% of float.
Surgery Partners (SGRY) - Leverage is very high at 11x forward EBITDA. Growth slowing and the stock is expensive relative to historical multiples (23x 2022 and 20.5x 2024 EBITDA). Has increased share count by 72% over 18 months.
Edition: 135
- 13 May, 2022
Bear’s Den Idea Forum
Several ideas presented at MYST’s latest buy-side event focused on “misguided acquisitions”...
Carvana (CVNA) - Overpaying for “mediocre ADESA asset” increases balance sheet risk as competition intensifies (35% downside).
Celanese (CE) - “Massively overearning” in Acetic Acid segment; DuPont M&M deal increases leverage / cyclicality (30% downside).
Synaptics (SYNA) - Expensive roll-up of low-quality semiconductor assets at cyclical peak (45% downside).
Edition: 132
- 01 April, 2022
CarMax (KMX)
Consumer Discretionary
The next General Motors? If GM can compete with Tesla, why can’t KMX compete with Carvana and become the largest online auto retailer? Management has set a goal of delivering $33bn in annual sales in Fiscal 2026 (~2m cars) which Northcoast believe could result in earnings as high as $12 per share. Shares to rerate higher as the benefits of its omni-channel strategy become more fully appreciated.
Edition: 110
- 14 May, 2021