Carvana’s first stock split puts affordability and access in focus

Carvana (CVNA) is drawing fresh investor attention after its Board of Directors approved the company’s first ever 5-for-1 stock split, pending a shareholder vote at the upcoming annual meeting.

At a share price of US$300.15, Carvana has seen a 1 year total shareholder return of 65.66% and a very large 3 year total shareholder return, even as the 30 day share price return of 17.56% and year to date share price return of 25.01% show momentum cooling ahead of the proposed stock split, ongoing options market caution and governance proposals around board roles.

If this news has you thinking about where else growth stories might emerge, it could be a good time to scan our list of 18 top founder-led companies as potential next ideas.

With analysts’ average price target sitting above the current US$300.15 share price and valuation flags still present, the key question is whether Carvana is now mispriced on the low side or if the market is already accounting for much of its potential future growth.

Most Popular Narrative: Fairly Valued

Carvana’s most followed narrative pegs fair value close to the current $300.15 share price, so the real interest lies in how that view is built.

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 debit 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 births skepticism. Back during Carvana's first crash, Michigan suspended Carvana's dealerships license in 2022, citing "fraudulent acts" and 127 probation violations, including destroying title applications and failing to properly process title/registrations paperwork. Carvana: A Father-Son Accounting Grift For The Ages – Hindenburg Research. Hindenburg research goes into depth on the fraudulent activities going on with the father and son bank fraud and writing of bad loans. The SEC has also taken interest in Carvana in their accounting. And more recently the company disclosed an SEC subpoena that it partly linked to that Hindenburg report.

Want a clearer picture of how this narrative treats margins, cash generation and future profitability multiples, without just relying on headline growth rates? The full story connects those moving parts into one valuation call.

Result: Fair Value of $0.00 (ABOUT RIGHT)

However, sustained negative multi month returns, or any fresh regulatory or accounting scrutiny, could quickly challenge the idea that today’s price already reflects the risks.

Another View: Cash Flows Paint a Different Picture

While the most followed narrative calls Carvana fairly valued at around $300.15, our DCF model points in another direction, with an estimated future cash flow value of $435.32. That gap suggests the market price could be leaving meaningful upside or reflecting doubts that the cash flows will fully materialize. Which side of that debate do you feel more comfortable with?

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 48 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

If this mix of risks and rewards feels finely balanced, it is worth moving quickly to check the underlying numbers and form your own view. You can start with 4 key rewards.

Looking for more investment ideas?

If you stop with just one stock, you risk missing other opportunities that could better fit your goals, risk comfort and time horizon.

• Chase potential value by scanning 48 high quality undervalued stocks that pair solid fundamentals with pricing that may not fully reflect their strengths.
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• Hunt for future standouts using our screener containing 26 high quality undiscovered gems that many investors may not be focusing on yet.

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.