Carvana (CVNA) shares are up around 2% Monday despite Kerrisdale Capital releasing a note saying it is short the stock.
The short-selling firm labelled Carvana a "poorly capitalized, growth-challenged auto retailer."
Carvana shares surged 32% last week and is now valued at around $19 billion.
"Prior to this move, Carvana's valuation was already stretched – now, its share price is so ridiculous that it doesn't just trade at levels unheard of for an auto dealer, it trades at a premium to leading tech companies," argues Kerrisdale.
"Carvana does not have a brighter path to profitable growth than CarMax (NYSE:KMX), let alone Microsoft," they add. "While tech peers drive an exciting revolution in AI, Carvana shareholders are at risk of being run over to help pay down billions in high yield debt with 14% PIK interest."
Kerrisdale says that at present levels, Carvana's enterprise value is 40% greater than CarMax's "despite selling half the number of retail units and having no demonstrable advantage in terms of margins, market share, or capital allocation."
They believe Carvana shares should, at the very least, converge to trade at multiples in line with CarMax. The firm assigned the stock a $16 price target.