The S&P 500 quarterly rebalance includes Carvana, reflecting its market cap growth to nearly $87 billion. The online used car dealer underwent a remarkable transformation from near bankruptcy to profitability through aggressive cost cuts and record-high vehicle sales. Analysts upgraded Carvana’s stock on improved margins and sustained earnings, signaling real growth.

S&P 500 inclusion triggers an “index effect,” spiking prices 5-10%. Studies show additions yield 7.5% gains initially but only 2-3% excess returns in the first year. Carvana could gain $5-10 billion in liquidity from inclusion, but long-term gains depend on execution, not just ETF flows. Risks include subprime loan growth and insider selling.

Carvana’s ties to Cerberus Capital Management and DriveTime Automotive raise transparency concerns. Subprime loan portfolio growth amid record late payments poses risks to Carvana’s margins. Insider selling, opaque relationships, and mounting debt could signal cracks in the company’s foundation. Investors should tread carefully post-S&P 500 inclusion.

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Read more at Yahoo Finance: Up 96% in 2025, This Stock Will Be Added to the S&P 500 on Dec. 22