• If you are wondering whether Carvana's share price still makes sense after everything it has been through, or if the value case is already stretched, you are not alone in asking that question.
• The stock last closed at US$403.67, with a 0.6% return over 7 days, a 10.5% decline over 30 days, a 0.9% return year to date, a 52.9% return over 1 year and a very large 3 year gain that is well over 7x, while the 5 year return sits at 36.4%.
• Recent headlines around Carvana have focused on its business model, balance sheet, and how investors are thinking about used car demand and online auto retail. This helps frame why the share price can move sharply in short periods. This context is important because sentiment around these themes often feeds directly into how the market is willing to price Carvana at any given time.
• Right now, Carvana has a valuation score of 1 out of 6 on our checks for being undervalued. Next we will look at the usual valuation tools that feed into that score, then finish with a fuller way of thinking about what the market might be pricing in.

Carvana scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Carvana Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business might be worth today by taking projections of future cash flows and discounting them back to a present value.

For Carvana, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The company’s last twelve month free cash flow is about $520.3 million. Analyst and extrapolated estimates suggest free cash flow reaching $4.2b in 2030, with intermediate projections between 2026 and 2035 that are first based on analyst inputs and then extended using Simply Wall St estimates.

On this basis, the DCF output points to an estimated intrinsic value of roughly US$422.42 per share. With the recent share price at US$403.67, the model implies the stock is about 4.4% undervalued, which sits well within the margin of error for this kind of analysis.

Result: ABOUT RIGHT

Carvana is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Carvana Price vs Earnings

For companies that are generating earnings, the P/E ratio is a simple way to connect what you pay today with what the business is currently earning. It gives you a quick sense of how many dollars investors are willing to pay for each dollar of profit.

What counts as a “normal” P/E depends heavily on what the market expects for future growth and how risky those earnings appear. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk usually points to a lower one.

Carvana is trading on a P/E of 90.76x. That is well above the Specialty Retail industry average of 21.52x and also above the peer average of 19.23x. Simply Wall St’s Fair Ratio framework estimates what a more tailored P/E might look like by taking into account factors such as earnings growth, profit margin, industry, market cap and company specific risks, rather than relying only on broad peer or industry comparisons.

For Carvana, the Fair Ratio is 36.96x, which is materially below the current P/E of 90.76x. On this metric, the shares look expensive relative to what the model suggests would be a more balanced multiple.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Carvana Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way for you to write the story behind your numbers by pairing your view on Carvana’s future revenue, earnings and margins with a forecast and a fair value estimate. You can track this on Simply Wall St’s Community page and compare it with the current share price to help decide when you might buy or sell. It will also update automatically as new news or earnings arrive. For example, one investor might build a Narrative that assumes Carvana’s fair value sits well below today’s US$403.67 price, while another might see a fair value above it based on different expectations.

Do you think there's more to the story for Carvana? Head over to our Community to see what others are saying!

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.