What happened

Shares of Carvana (CVNA 8.79%) are sinking in Friday's trading. The company's share price was down 13.2% as of 12:30 p.m. ET, according to data from S&P Global Market Intelligence.

Carvana stock is losing ground following a report published by Forbes detailing irregularities surrounding one of the company's former reconditioning vendors, HyperSport Industries. According to the report, HyperSport would submit duplicate invoices to Carvana for lone painting and repair jobs. 

So what

Forbes' recent report on HyperSport suggests that the company was linked with Carvana and notes that a relationship was never detailed or mentioned in any public filings or statements. According to Carvana employees, HyperSport technicians worked with Carvana technicians at more than a dozen inspection and reconditioning centers. The Carvana employees also stated that one of the company's managers had an ownership interest in HyperSport -- and that there was an improper incentive structure that promoted duplicate billings and reliance on the vendor for repairs and supplies. 

While the allegations raised in the report aren't confirmation that Carvana or its employees were intentionally engaged in fraudulent practices, the points raised are troubling. If true, the issues at least suggest that Carvana wasn't paying close enough attention to what it was being billed for repairs contracted through HyperSport. 

Now what

Carvana stock has been red hot in 2023. The online used car dealer has posted explosive gains thanks to short-squeeze momentum and guidance for improving gross profit and non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) of more than $50 million this year. Even with today's pullback, the company's share price is up more than 360% year to date. 

CVNA Chart

CVNA data by YCharts

Whether or not the company's relationship with HyperSport winds up becoming a bigger issue, Carvana stock simply looks too risky right now.

With the Federal Reserve announcing that it will likely deliver additional interest rate hikes in 2023 and the possibility that the U.S. will slip into recession this year or next, investing in Carvana would be ill advised on the heels of an incredible valuation run-up.