Shares of Carvana (CVNA) are under renewed pressure ahead of the company’s highly anticipated earnings report on February 18, 2026, with the online used-car retailer’s stock tumbling roughly 27% from its January peak near $485 to around $342. Carvana Co. (CVNA) closed at $342.87 on February 13 at 4:00:02 PM EST, down $1.27, or 0.37%, for the session. The sharp pullback marks a significant reversal for a company that had been riding a powerful turnaround narrative following its operational restructuring and return to profitability.
The latest decline underscores mounting concerns that extend beyond simple market volatility. While Carvana had previously benefited from improving margins, stronger retail unit sales, and cost-cutting measures, investors are now grappling with legal scrutiny and renewed skepticism sparked by a critical report from Gotham City Research.
Short-Seller Report Casts a Long Shadow
In January 2026, Gotham City Research published a report alleging accounting irregularities and raising questions about so-called “related-party transactions” between Carvana and affiliated entities. The report suggested that certain financial arrangements may have inflated profitability metrics through what it described as “circular funding” mechanisms.
Central to those allegations are ties to Ernie Garcia II, the father of Carvana’s CEO, and his historical connection to DriveTime. According to Gotham, DriveTime and its financing arm Bridgecrest, may have played roles in absorbing losses or facilitating transactions that obscured the retailer’s true financial position.
Carvana has denied wrongdoing and defended the transparency of its reporting. However, the controversy has rattled investor confidence at a delicate moment for the stock.
Regulatory and Legal Risks Intensify
Adding to the uncertainty, the SEC (Securities & Exchange Commission) is reportedly investigating potential violations of federal securities laws related to the allegations. While no formal charges have been announced, even the possibility of regulatory action has weighed heavily on sentiment.
Compounding the issue, a recent ruling by Judge Boyle granted a motion to compel the release of sensitive DriveTime-related documents. That decision could bring additional disclosures into public view, potentially shaping both regulatory outcomes and investor perception.
The convergence of legal scrutiny and short-seller claims has shifted the narrative from operational recovery to risk management, at least in the short term.
Earnings Expectations Remain Elevated
Despite the turbulence, Wall Street expectations for the fourth quarter remain solid. Analysts project revenue of approximately $5.19 billion and earnings per share of $1.10 for Q4 2025. Carvana has been promoting its turnaround story, highlighting operational efficiencies and retail unit sales surpassing 150,000 vehicles in the quarter.
The company’s earnings call on February 18, 2026, will be closely watched not only for financial results but also for management’s tone and willingness to address the DriveTime-related concerns directly. Investors are eager to hear whether executives will tackle the allegations head-on or focus strictly on operational metrics.
Market research firm Zacks Investment Research currently assigns Carvana a Rank #3 (Hold), accompanied by a bearish -16.80% Earnings ESP, suggesting that analysts see limited near-term upside and a heightened risk of earnings disappointment.
Underperformance Versus the Broader Market
Carvana’s volatility stands in contrast to the broader market. Since being added to the S&P 500 Index ($SPX) in December 2025, the stock has underperformed the benchmark amid its recent slide. Inclusion in the index was initially viewed as a validation of the company’s recovery, but the subsequent sell-off highlights how quickly sentiment can reverse.
The 27% drop appears to reflect more than a routine technical correction. Instead, it represents a confluence of fundamental uncertainty, legal risk, and reputational challenges. While Carvana continues to tout a dramatic year-over-year earnings improvement, projecting growth exceeding 90%, the market is currently pricing in the shadow of the Gotham City Research allegations.
As February 18 approaches, the key question is whether strong operational results can outweigh legal overhangs. For now, investors remain cautious, awaiting clarity on both the financials and the broader governance narrative shaping Carvana’s next chapter.
