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From Ashes to Glory: Is Carvana's Premium Valuation Worth It?
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Key Takeaways
CVNA stock is up 59% YTD, far outpacing peers like KMX and LAD, which are both in the red.
Carvana holds the highest adjusted EBITDA margin among public car dealers at 11.5%.
The company aims to sell 3M cars annually and hit a 13.5% adjusted EBITDA margin in the long term.
From being on the brink of collapse in 2022, used car e-retailer Carvana Inc. (CVNA - Free Report) has staged a remarkable comeback. The stock rocketed more than 1000% in 2023 and tacked on another 284% last year. The momentum doesn’t seem to be stopping. So far this year, the stock has surged 59%, handily outperforming the broader industry as well as peers like CarMax (KMX - Free Report) and Lithia Motors (LAD - Free Report) . In fact, shares of CarMax and Lithia Motors fell 15% and 5%, respectively, over the same timeframe.
YTD Price Performance Comparison
Image Source: Zacks Investment Research
Much of this turnaround can be traced back to Carvana’s 2023 debt restructuring and its strategic pivot toward efficiency over aggressive growth. The company has been steadily delivering on its promises—and it’s showing up in the numbers. Today, Carvana boasts the highest adjusted EBITDA margin among public car dealers at 11.5%, far ahead of its peers.
Image Source: Carvana, Inc.
On the valuation front, Carvana is trading at a forward sales multiple of 3.41—well above the industry levels as well as its own five-year average. In contrast, CarMax and Lithia Motors trade at just 0.38X and 0.22X, respectively.
Image Source: Zacks Investment Research
Yes, Carvana looks expensive. But its premium also reflects its high growth expectations and improving profitability. CVNA is targeting a 13.5% adjusted EBITDA margin and hopes to sell 3 million cars annually within the next 5 to 10 years. It’s a bold goal— and a sign of confidence in its business model and potential to run more efficiently over time. If Carvana keeps executing, its lofty valuation might just be justified.
Why We are Bullish on CVNA
Carvana has grown into the second-largest used car retailer in the United States—and it has done so by rewriting the rules of auto retail. Instead of building a network of physical dealerships like traditional players, Carvana has embraced a fully digital model that lets buyers shop, finance and even arrange delivery—all online. Carvana’s car vending machines are the first fully automated, coin-operated car pick-up centers in the country, offering customers a memorable and tech-forward way to collect their vehicles.
Behind the scenes, Carvana’s performance has picked up serious momentum. The company beat earnings expectations for four straight quarters, consistently selling over 100,000 retail units per quarter. In its last reported quarter, retail sales jumped 46% year over year, and earnings per share more than doubled. Management is confident this strength will continue through the year.
The key reason for the turnaround is Carvana’s focus on efficiency. The company has streamlined its operations — from trimming down reconditioning and transport processes to optimizing staff and using its own logistics tech to move inventory smarter. This has helped boost margins. In the last quarter, adjusted EBITDA hit a record $488 million. Gross profit per unit also improved by 8%, highlighting both pricing strength and cost control.
A key piece of its strategy is the acquisition of ADESA’s U.S. operations. This move has supercharged Carvana’s ability to recondition and prepare cars for sale. Once fully scaled, it could help Carvana boost its annual reconditioning capacity to 3 million units — more than double today’s level.
If there’s one concern, it’s the balance sheet. As of March 2025, Carvana carried $5.26 billion in long-term debt versus $1.8 billion in cash, resulting in a high debt-to-capital ratio of 0.75. That adds financial risk.
Still, for investors willing to accept some leverage, Carvana offers a compelling growth story. Its asset-light model, tech-driven approach and improving margins make a strong case for its long-term potential.
What Do Estimates for CVNA Say?
The Zacks Consensus Estimate for CVNA’s 2025 sales and EPS implies year-over-year growth of 32% and 214%, respectively. The EPS estimates for 2025 and 2026 have moved north in the past 90 days.
Image Source: Zacks Investment Research
Last Word
Carvana’s multiple is undeniably rich, yet rising margins and upward estimate revisions give that premium real support. If management keeps hitting its targets while cutting debt, the valuation can stay credible. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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From Ashes to Glory: Is Carvana's Premium Valuation Worth It?
Key Takeaways
From being on the brink of collapse in 2022, used car e-retailer Carvana Inc. (CVNA - Free Report) has staged a remarkable comeback. The stock rocketed more than 1000% in 2023 and tacked on another 284% last year. The momentum doesn’t seem to be stopping. So far this year, the stock has surged 59%, handily outperforming the broader industry as well as peers like CarMax (KMX - Free Report) and Lithia Motors (LAD - Free Report) . In fact, shares of CarMax and Lithia Motors fell 15% and 5%, respectively, over the same timeframe.
YTD Price Performance Comparison
Much of this turnaround can be traced back to Carvana’s 2023 debt restructuring and its strategic pivot toward efficiency over aggressive growth. The company has been steadily delivering on its promises—and it’s showing up in the numbers. Today, Carvana boasts the highest adjusted EBITDA margin among public car dealers at 11.5%, far ahead of its peers.
On the valuation front, Carvana is trading at a forward sales multiple of 3.41—well above the industry levels as well as its own five-year average. In contrast, CarMax and Lithia Motors trade at just 0.38X and 0.22X, respectively.
Yes, Carvana looks expensive. But its premium also reflects its high growth expectations and improving profitability. CVNA is targeting a 13.5% adjusted EBITDA margin and hopes to sell 3 million cars annually within the next 5 to 10 years. It’s a bold goal— and a sign of confidence in its business model and potential to run more efficiently over time. If Carvana keeps executing, its lofty valuation might just be justified.
Why We are Bullish on CVNA
Carvana has grown into the second-largest used car retailer in the United States—and it has done so by rewriting the rules of auto retail. Instead of building a network of physical dealerships like traditional players, Carvana has embraced a fully digital model that lets buyers shop, finance and even arrange delivery—all online. Carvana’s car vending machines are the first fully automated, coin-operated car pick-up centers in the country, offering customers a memorable and tech-forward way to collect their vehicles.
Behind the scenes, Carvana’s performance has picked up serious momentum. The company beat earnings expectations for four straight quarters, consistently selling over 100,000 retail units per quarter. In its last reported quarter, retail sales jumped 46% year over year, and earnings per share more than doubled. Management is confident this strength will continue through the year.
The key reason for the turnaround is Carvana’s focus on efficiency. The company has streamlined its operations — from trimming down reconditioning and transport processes to optimizing staff and using its own logistics tech to move inventory smarter. This has helped boost margins. In the last quarter, adjusted EBITDA hit a record $488 million. Gross profit per unit also improved by 8%, highlighting both pricing strength and cost control.
A key piece of its strategy is the acquisition of ADESA’s U.S. operations. This move has supercharged Carvana’s ability to recondition and prepare cars for sale. Once fully scaled, it could help Carvana boost its annual reconditioning capacity to 3 million units — more than double today’s level.
If there’s one concern, it’s the balance sheet. As of March 2025, Carvana carried $5.26 billion in long-term debt versus $1.8 billion in cash, resulting in a high debt-to-capital ratio of 0.75. That adds financial risk.
Still, for investors willing to accept some leverage, Carvana offers a compelling growth story. Its asset-light model, tech-driven approach and improving margins make a strong case for its long-term potential.
What Do Estimates for CVNA Say?
The Zacks Consensus Estimate for CVNA’s 2025 sales and EPS implies year-over-year growth of 32% and 214%, respectively. The EPS estimates for 2025 and 2026 have moved north in the past 90 days.
Last Word
Carvana’s multiple is undeniably rich, yet rising margins and upward estimate revisions give that premium real support. If management keeps hitting its targets while cutting debt, the valuation can stay credible. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.