Why Carvana’s latest quarter is back in focus

Carvana (CVNA) is back on many watchlists after a recent quarter where EBITDA and retail gross profit per unit came in above expectations, alongside continued strong unit growth and improved profitability.

This combination of earnings quality and operating metrics has eased some near term concerns around the business, with institutional investors and analysts highlighting fundamentals as a key driver of the stock’s latest moves.

The stock has been volatile, with the share price falling about 18% over the past month but edging higher over 90 days. The 1 year total shareholder return is positive, and the 3 year total shareholder return is very large. The recent rebound, including a 1 day share price return of 6.04%, has come after earlier losing streaks and appears closely tied to stronger quarterly EBITDA, higher retail gross profit per unit and updated views from large investors on the company’s risk profile.

If strong earnings reactions like Carvana’s have your attention, it could be a good time to see what else is moving and check out 20 top founder-led companies

With the stock up 12.26% over the past year, strong recent EBITDA, and a last close of US$68.28 versus an analyst price target of US$92.92, the key question is whether this represents a genuine opportunity or a market that is already pricing in future growth.

Most Popular Narrative: Fairly Valued

Carvana’s latest close of $68.28 sits against a narrative fair value that is effectively in line, so the focus is on how that valuation is being justified rather than on any declared discount or premium.

There are growing concerns among some market observers that Carvana's business model may be masking deeper financial instability. The company has a long history of operating with negative cash flow followed with rapid debt expansion, and unusually aggressive revenue recognition practices that raise questions about the sustainability of its margins. Analysts have also noted that Carvana's reported improvements in profitability often coincide with accounting adjustments rather than genuine operational strength, suggesting the possibility of earnings "smoothing out." Additionally, the firm's reliance on securitizing subprime auto loans creates opacity around the true quality of its assets; rising delinquencies in the used car loan market increase the risk that these securities are overvalued. When a company simultaneously carries heavy debt, thin cash reserves and complex financial structures that are difficult for outside investors to verify, it can generate skepticism.

The tension in this narrative, according to Sirupy, lies in the gap between reported earnings progress and the cash flow and balance sheet profile backing it. The fair value depends on how sustainable margins are, what happens to securitized loan performance, and how much confidence investors place in the accounting adjustments behind recent profitability.

Result: Fair Value of $0 (ABOUT RIGHT)

However, this fair value view could shift quickly if cash flow trends weaken again or if regulatory scrutiny around accounting and loan practices intensifies.

Another View: Cash Flow Based Fair Value

While the user narrative points to a fair value around the current $68.28 share price, the Simply Wall St DCF model paints a different picture. On that cash flow based view, Carvana at $68.28 is trading above an estimated fair value of $27.94, which implies valuation risk if cash flows fall short of expectations.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Carvana for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals across cash flow, valuation and sentiment, the real question is how you see the balance of risk and reward playing out. Take a closer look at the data, form your own view and pressure test it against the 3 key rewards and 2 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.