Sharing my current top short: Carvana $CVNA

7 months ago

Hi HODLers, Hiveans and Lions,

Today, I want to discuss a short trade opportunities that have caught my attention recently.

Shorting stocks can be a strategic move when you believe a company's share price is likely to decline. These two companies, Carvana $CVNA and Upstart $UPST, have sparked my interest due to specific concerns about their financial health and operating conditions.

Beware: Shorting is risky so do not try this except if you are an experienced investor.

Short Trade 1: Carvana (NYSE: $CVNA)

Carvana, a company known for revolutionizing the way we buy cars, has made waves in the automotive industry. Despite its innovative approach, there are significant concerns about Carvana's financial health.

Negative Free Cash Flow (FCF): Carvana has struggled to generate positive free cash flow, which is a critical indicator of a company's financial stability. Consistent negative FCF could lead to issues servicing debt and hinder its ability to fund future growth.

High Debt Burden: Carvana carries a substantial amount of debt which they have refinanced through a PIK. I had no idea what it meant until they did and it is a way a company can take debt at a higher interest rate but will only start paying interests x years after being loaned the money.

To put it in simple words: They got the money but are not paying any interests or principal for the next 18months! Great move, but even without paying debt, they are still burning cash. Just imagine when interest payments will be turned on again? No bueno...

CarGurus Used Price Car index

As prices of cars continue to drop, it will start to hurt CarDealers profits and some might have to even depreciate their inventory as they will have to take a loss later on.

If Carvana cannot make a positive FCF while paying no debt and having some of the greatest economic paradigm for used car dealers over the past 10 years. how do you expect them to make money as interest rates are killing consumers and they will have to pay 14%+ on their heavy debt?