CVNA Carvana
Real share-taker with superior unit economics, but the price already assumes near-flawless execution through a cycle.
The story
Carvana is an online used-car retailer that has built a vertically integrated network of reconditioning centers and logistics, including the ADESA sites it acquired. After nearly failing in 2022-23, it has come back with record unit growth and best-in-class gross profit per unit. That scale and those unit economics give it a real but narrow moat in a fragmented, cyclical, low-margin industry. It is moving from a turnaround into a high-growth phase of taking market share, but used-car retail economics will cap mature margins in the high single digits.
Revenue is compounding at 25-40% as Carvana gains share in a roughly $1T used-car market, so growth starts at 30% and fades over a 10-year runway. The target margin of 8.5% sits above peers like CarMax, which earn about 3-4%, because of Carvana's cost structure and finance gain-on-sale income, but stays below levels that assume permanent excess returns. Sales-to-capital of about 3 matches recent efficiency. Beta of 1.5 and a 5% failure probability reflect heavy leverage, dependence on credit markets and a history of near-distress.
Value drivers
| Revenue growth (Y1) | 30.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 10y |
| Target operating margin | 8.5% |
| Years to target margin | 5 |
| Sales-to-capital | 3.00 |
| Beta | 1.50 |
| Failure probability | 5.0% |
| Cost of capital (WACC) | 11.5% |
| Terminal WACC | 9.4% |
Valuation bridge
| PV of explicit FCFF | 4.18B |
| PV of terminal value | 28.78B |
| Equity value | 27.94B |
| ÷ shares → per share | $38.80 |
News
neutral -0.10 · 8 articles
- Is Carvana Stock Underperforming the S&P 500?
- 2 Under-the-Radar Auto Stocks Poised to Soar While Nobody Is Looking
- 1 Cash-Producing Stock on Our Buy List and 2 We Brush Off
- Carvana (CVNA) Stock Moves -2.65%: What You Should Know
- Root Extends Carvana Deal Through 2028 to Support Embedded Growth
- Carvana Stock Has Lost 33% From Its High While the Business Sets Records. Is the Fear Overdone?
- Wall Street Bulls Look Optimistic About Carvana (CVNA): Should You Buy?
- 1 Volatile Stock to Own for Decades and 2 We Brush Off
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 32.58B | 30.0% | 1.3% | 330.68M | 2.51B | -2.18B | -1.95B |
| 2 | 41.39B | 27.1% | 3.1% | 1.01B | 2.94B | -1.93B | -1.55B |
| 3 | 51.37B | 24.1% | 4.9% | 1.99B | 3.33B | -1.34B | -968.30M |
| 4 | 62.24B | 21.2% | 6.7% | 3.29B | 3.62B | -331.74M | -214.89M |
| 5 | 73.58B | 18.2% | 8.5% | 4.94B | 3.78B | 1.16B | 674.43M |
| 6 | 84.82B | 15.3% | 8.5% | 5.70B | 3.75B | 1.95B | 1.02B |
| 7 | 95.29B | 12.3% | 8.5% | 6.40B | 3.49B | 2.91B | 1.36B |
| 8 | 104.23B | 9.4% | 8.5% | 7.00B | 2.98B | 4.02B | 1.69B |
| 9 | 110.95B | 6.4% | 8.5% | 7.45B | 2.24B | 5.21B | 1.96B |
| 10 | 114.83B | 3.5% | 8.5% | 7.71B | 1.29B | 6.42B | 2.17B |
Key risks
- Credit cycle and ABS market disruption hitting loan sale gains and financing
- Used-car price deflation or demand slowdown compressing GPU
- Leverage and governance concerns including related-party dealings with DriveTime
Catalysts
- Continued share gains and retail unit growth above 30% from ADESA capacity
- Debt paydown and credit upgrades lowering cost of capital