Nicholas Mugalli
Institutional TMT & Macro Research, AI/Semiconductors/Policy
Carvana's clean Q1 beat in a strained consumer environment is reassuring, but collapsing free cash flow is the number the bear case lives in. Revenue rose 52% to $6.43B and adjusted EBITDA of $672M beat, with SG&A per unit down 7.8% and retail GPU recovering from Q4 reconditioning issues; full-year EBITDA estimates rise to about $2.9B. Free cash flow fell 73% to $56M versus a $157M estimate, pointing to inventory build or rising financing costs. Q2 retail GPU faces headwinds. x.comÂ
Carvana is rated Overweight with a $455 December 2026 target because its ADESA reconditioning network is a moat that cuts per-unit costs that CarMax and traditional dealers can't copy. With 43% retail unit growth and $2.2B of 2025 adjusted EBITDA it is already paying off. Unaffordable new cars push buyers into nearly new used cars, and 1.6% share of a 40M-unit market leaves runway. The risk is credit: if lenders pull back, conversion falls. x.comÂ
Carvana has completed one of the most impressive turnarounds in recent memory, and the market is underestimating the runway ahead. It sold a record 187K retail units, posted a record $672M of adjusted EBITDA and cut net leverage to 1.1x, while AI-powered reconditioning tools are already lifting labor efficiency. x.comÂ
CarMax's turnaround is still unfolding, and the latest quarter reinforced it. Used retail unit sales rose 9%, the $200M SG&A savings target is on track, CarMax Auto Finance penetration is growing, and about $35 per vehicle of EPP profit uplift is expected by FY27; management says it has turned the corner. At about 17x forward earnings, the stock still trades below its 20.8x historical average despite improving fundamentals, so the buy-up-to price is being raised. x.comÂ
Carvana's rising costs and falling loan-sale gains leave volume growth without operating leverage. Ad spending rose to $152M from $121M last quarter, and $3.45B of inventory enters a seasonally weak quarter. Gain on sale fell less than expected; it still tops $2,000 upfront on a roughly $25,000 car, but the chart uses all retail units, not just financed ones. The after-hours rise should fade, and an ABS-market freeze would make those gains irrelevant. x.com x.com x.com x.comÂ
Copart is a Strong Buy at 52-week lows, with Jay Adair's return and the planned ACV acquisition giving reasons to watch for a recovery. Its online auctions sit on a hard-to-replicate network of vehicle yards, a junkyard tollbooth hiding in plain sight, and the stock trades at about 17.6x earnings versus a historical 26.9x. Growth has slowed; the thesis depends on volume recovering and ACV expanding the opportunity. x.com x.comÂ
Mobility Global looks like the typical spinoff most holders dump, not a desirable one like Honeywell Aviation. With Carfax about two-thirds of revenue, it is essentially Carfax, which seems unlikely to remain stand-alone; Equifax, TransUnion or others might eventually acquire it. A reply notes much of Carfax's value comes from public data, with dealers and shops reluctant to share proprietary data. No final decision to sell has been made yet. x.com x.comÂ
Carvana faces a tough road ahead based on its earnings and management commentary. Anyone expecting 30%+ growth for a while could be surprised within a few quarters by major deceleration and margin pressure. x.comÂ
Copart looks more like a cyclical bet on insurance volumes than a durable leader. Its strengths were just as true in 2010-2020, yet something changed, and without identifying what would restore its lead over IAA, the case relies on volumes recovering. Rising ADAS penetration makes the volume problem look secular. x.comÂ
Credit Acceptance faces pressure because subprime car buyers are running out of money. Its EPS growth has come largely from buybacks, with operating cash flow flat over five years, per another investor's review, and lending businesses like this are very hard to analyze. x.comÂ
Carvana and CarMax face a worsening used-car demand outlook: search growth has rolled over, and their app-download growth has slowed. Inflation and interest rates are among the pressures behind the slowdown, on top of the previously noted weaker pricing power and rising inventory. x.com x.com x.comÂ
Hims & Hers' shrinking free cash flow is weighing on the stock, since share prices follow a company's ability to generate free cash flow over time. Over the last 12 months, free cash flow fell 65% and the stock fell 44%. x.comÂ
