E-commerce-based used-car retailer, Carvana (NYSE: CVNA) has experienced a remarkable turnaround, rebounding from a near-bankruptcy situation in late 2022, when its stock traded at under $5, to around a high of $260 per share in 2024. At present, the stock trades near $180 per share (Jan 6), up around 236% since the beginning of last year, 2024. In comparison, the S&P index has been up 23% over the same period. In contrast, CVNA’s peer CarMax’s stock(NYSE: KMX), a used-car industry leader, is up only 4%.
So what is happening with CVNA stock?
Carvana posted its third straight net profit in Q3. Its earnings came at about $1.26 per share, a drop of 65% year-over-year (y-o-y), but that was still much better than had been feared. The market was expecting it to earn $0.25 per share. Carvana reported a 34% y-o-y increase in vehicle sales units in Q3, with expectations of sequential unit growth acceleration in Q4 – indicating sustained strong sales momentum in the current quarter. Its sales also grew 32% y-o-y to $3.7 billion. In addition, the company’s Q3 adjusted EBITDA margin was 11.7% in Q3, a 6.4 percentage point increase.
That said, Carvana’s debt restructuring initiative implemented in early 2023 played a pivotal factor in the company’s recovery, with its stock increasing ~40-fold over two years. However, the company’s profitability remains tenuous, with a net income of $131 million (or $1.01 per share) in the first nine months of 2024. The company’s debt restructuring deferred debt maturities and reduced annual interest expenses by approximately $450 million over two years. However, the expiration of this arrangement in Fall 2025 will likely require Carvana to resume interest payments, potentially reducing profitability or leading to losses. Meanwhile, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Carvana has significant growth potential, with its current market share of only 1% in the used car sales industry, which facilitates approximately 40 million transactions annually. Carvana’s innovative approach allows customers to browse and select from a curated online inventory of inspected and reconditioned vehicles, eliminating the need for traditional sales interactions. The company offers flexible delivery options, including pickup from automated vending machines or direct delivery. This streamlined model affords Carvana a competitive advantage over rivals like CarMax, which incur higher operational costs associated with maintaining physical lots and employing sales staff.
It should be noted that Carvana’s stock price has declined around 12% since the onset of 2025, primarily due to allegations made by Hindenburg Research. The short-seller claims Carvana failed to disclose related-party transactions and material information. In response, Carvana has categorically denied these allegations, deeming them “misleading and inaccurate.” Notably, Hindenburg Research has initiated a campaign against Carvana, following its recent success targeting Super Micro Computer. Investors are advised to closely monitor this situation for further developments.
Overall, CVNA stock performance over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. While CVNA stock has seen strong growth over recent years, the Trefis High Quality Portfolio, with a collection of 30 stocks, has provided better returns with less risk versus the benchmark S&P 500 index over the last four year period; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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