Carvana (CVNA 0.90%) has been riding high after a blockbuster first quarter that saw the online used-car retailer hit record highs across virtually every key metric.
Investors who bought in when Carvana was a single-digit stock during a very rocky 2022 are sitting on spectacular gains now, with the share price up 1,000% over the past three years. The stock has surged 183% over the past year, and lately it’s been within striking distance of its all-time highs.
After such a massive run, is it too late to park this e-commerce upstart in your portfolio? Let’s kick the tires on Carvana.
Huge vending machines are one place to pick up a vehicle purchased from it. Image source: Carvana.
An impressive turnaround
From the start, retail units (vehicles) sold has been Carvana’s most important metric. In 2017 — its first year as a public company — Carvana sold 44,252 retail units, more than double its total from the previous year. That number peaked in 2021 at 425,237 units sold, right before things took a scary turn.
After eight years of hypergrowth and steady margin improvement, Carvana ran into a perfect storm in 2022. Multiple interest rate hikes, stubborn inflation, and record-high vehicle prices slammed the brakes on used-car sales. Meanwhile, Carvana had overextended itself at the worst possible time, finalizing its $2.2 billion acquisition of ADESA’s U.S. brick-and-mortar auction business in May 2022 — just as the market was stalling.
For full-year 2022, Carvana posted a net loss of $2.9 billion, while gross profit per unit — its second most important metric — dropped from $4,537 to $3,022. The stock plunged 98% in 2022.
Heading into 2023, Carvana was holding excess inventory and $6.6 billion in long-term debt. The stock had plummeted below $10 a share, and bankruptcy rumors were swirling.
In a letter to shareholders, Carvana CEO Ernie Garcia said 2023 would be “a key year in our story.” He was right. The company restructured its debt, rightsized its operations, and cut $1.1 billion in annualized selling, general, and administrative expenses. Now, in mid-2025, the company is at the intersection of growth and profitability.
Hitting on all cylinders
As I noted earlier, Carvana’s first quarter of 2025 was a beauty. The company generated $4.2 billion in first-quarter revenue, a 38% increase from the year-ago period, on sales of 133,898 retail units, a 46% increase. Both were quarterly records.
On the bottom line, the company more than doubled net income and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $373 million and $488 million, respectively. Compared to its previous quarterly high for retail units sold (Q2 2022) Carvana sold 14% more vehicles with 30% less inventory, 45% less advertising spend, and 16% fewer employees. Doing more with less is a good thing.
The top- and bottom-line results prompted Garcia to unveil Carvana’s next big goal: selling 3 million vehicles per year at an adjusted EBITDA margin of 13.5% within five to 10 years.
Dreaming too big?
Getting to its goal of selling 3 million vehicles in a year would take a compound annual growth rate (CAGR) of 20% to 40%, according to the company. Investors salivate over this kind of growth. But is it realistic?
As Carvana adds inspection, reconditioning, and fulfillment capabilities to its ADESA facilities, the company says it will have the infrastructure to support sales of up to 3 million vehicles.
The growth runway is certainly there. Carvana estimates that it commands just 1% of a $1.2 trillion used-car market in the United States — a small slice of an enormous total addressable market. And Carvana is well positioned for growth, with a presence in more than 300 markets and with 81% of the U.S. population within its delivery range.
While the real estate is in place, Carvana will need to ramp up headcount to support its ambitious growth plans, and it’s already started doing so, announcing plans in April for an auction and reconditioning “megasite” integration in Phoenix that it expects will create roughly 200 jobs. Although Carvana’s labor efficiency has improved dramatically over the past few years, I worry when a CEO declares that “we plan to prioritize growth over margin,” which Garcia did in his Q1 shareholder letter. And I have to assume that Carvana will need to aggressively ramp up its marketing spend to achieve the kind of annual sales growth that it’s eyeing. Investors will need to watch how the numbers play out.
And don’t forget that Carvana still had $5.3 billion in long-term debt on the books, as of Q1 2025. Carvana has had some success in rejiggering its debt in the past, but it feels like the company is kicking the can down the road and this could weigh on the company.
Investor are expecting a lot
While the debt load bears watching, my biggest issue with Carvana is the valuation. At a price-to-earnings (P/E) ratio of 112, Carvana trades at a hefty premium to peers such as CarMax, which has a P/E of 21 looking at trailing 12-month numbers.
CVNA PE Ratio data by YCharts
After a nice string of earnings beats — topping estimates — the average analyst estimate for Carvana’s 2025 earnings per share (EPS) is $4.85, which would represent a 206% increase over the 2024 number. With sky-high expectations, it seems like Carvana’s stock is priced for perfection.
In my opinion, Carvana’s stock is at an inflection point. To justify its lofty valuation, the company needs to prove it can balance continued growth and operational efficiency. While Carvana has shown it can do more with less, sustaining margin stability while scaling to 3 million vehicles per year seems like a tall order.
If Carvana can hit its ambitious growth targets without losing its financial discipline, the upside could be substantial. But at this valuation, even one wrong turn could take the air out of the rally.
