OPENLANE Inc. (KAR), an online used car auctioneer, has implemented an accounting change that artificially inflates sales.

Instead of presenting finance revenue net of its provision for credit losses— as it has done historically— Openlane will now classify the provision as an operating expense rather than as a reduction of the finance revenues.

The changed lifted Openlane’s sales by:

—$54.3 million, or 3.1% in 2024
—$59.2 million, or 3.6% in 2023

Openlane says the impact is not material.

Notably, the change— disclosed in the company’s latest annual report— also inflates Openlane’s gross margin and comes less than two months after the Securities and Exchange Commission (SEC) forced the company to begin including certain expenses it had been excluding from its gross margin calculation.

With an Enterprise Value (EV) of approximately $4.6 billion, Openlane is priced as if it will grow annual sales to more than $3.17 billion, up from an estimated $1.80 billion in 2025. To justify its current share price of $20.91 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Openlane must:

—Grow sales 8.5% annually between 2027- 2032, significantly faster than the company’s estimated 2025 and 2026 sales growth of 0.7% and 7.7%, respectively, and the three-year average of 7.2%
—Immediately increase NOPAT margin to 9.7%, higher than our 2024 estimate of 6.69% and our 3-year average estimate of 8.7%

Notably, this scenario assumes Openlane requires no additional Invested Capital.

The current share price also implies Openlane increases Return on Invested Capital (ROIC) to 9.8% from our 3-year average estimate of 4.2%: