JPMorgan analysts downgraded Carvana (NYSE:CVNA) to Underweight from Neutral with a price target of $10 per share.

The price target implies a downside risk of 75% given that CVNA shares closed at $38.89 on Wednesday. The analysts argue that CVNA valuation “has once again disconnected materially from fundamentals.”

“We noted last month that CVNA should consider an equity raise (when shares were at $24) which would de-risk BS concerns further and with shares continuing to rally over the last month, it further reduces eventual dilution from an equity offering. The ideal outcome in our view, would still be a debt/equity exchange of some form, particularly involving the expensive 2030s while also de-risking the 2025s,” they said in a downgrade note.

The main factor behind JPMorgan’s downgrade is swollen valuation.

“We believe current valuation, at an EV of ~$14 bn with implied EV/EBITDA of ~35x on FY25 (vs bellwether e-comm peers at ~13x) is baking in a stronger than anticipated return to growth and related operational leverage in 2024 and beyond for which we have little conviction today.”

Carvana shares are up 720% year-to-date. The stock fell 4% on the JPMorgan downgrade news.