Carvana Stock: A Buy Amidst Record Profits or Overvalued Risk?

Carvana (NYSE: CVNA) has emerged as a disruptor in the automotive retail sector, but its stock’s volatility and high valuation leave investors questioning: Is now the right time to buy? With Q1 2025 earnings around the corner and a Zacks Rank #2 (Buy) rating, the company’s recent performance offers both optimism and caution.

A Turnaround Story: Profitability and Growth

Carvana’s financial turnaround has been nothing short of dramatic. After years of losses, the company reported a record $1.38 billion Adjusted EBITDA in 2024, with a 10.1% margin, making it the most profitable public automotive retailer in U.S. history. This was driven by a 33% year-over-year increase in retail unit sales to 398,500 units annually, with Q4 2024 hitting 114,379 units—a 50% surge from the prior year.

The stock’s recent surge—+38.6% over the past month—reflects investor confidence in its digital-first model, which combines online sales, same-day delivery, and vending machine convenience. Analysts now project Q1 2025 EPS of $0.73, a 278% jump from $0.23 in Q1 2024, alongside $4.04 billion in revenue, a 32% year-over-year increase.

Strategic Moves: Scaling for the Future

Carvana’s growth hinges on infrastructure investments like its “Megasite” projects. In February 2025, it announced integrating its Inspection and Reconditioning Centers (IRCs) with existing ADESA auction sites in Indianapolis and Colorado Springs. These megasites:
- Expand capacity: The Indianapolis site, spanning 100 acres, will add 12,000 parking spaces, supporting 3 million annual retail units (up from current capacity of ~375,000).
- Cut costs: Operational efficiency initiatives reduced non-GAAP SG&A expenses per retail unit by $1,165 and operations expenses to $1,696 per unit in 2024.
- Boost jobs: Each megasite creates ~200 local jobs, addressing workforce needs while improving logistics.

Risks Lurking Under the Hood

Despite the positives, risks remain. Carvana’s trailing P/E ratio of 128.76—far above industry averages—raises valuation concerns. A 12% stock drop followed its Q4 2024 report, likely due to non-recurring expenses or market skepticism about its ability to sustain margins.

Additional challenges include:
- Supply chain hurdles: Global disruptions could strain inventory acquisition, especially as competition intensifies.
- Amazon’s entry: While Carvana’s full e-commerce integration (e.g., home delivery) differentiates it, Amazon’s foray into used cars adds pressure to innovate.
- Debt management: Though a July 2023 debt restructuring reduced interest costs by $430 million annually, the company’s leverage remains a long-term concern.

The Bottom Line: Buy for Growth, But Mind the Volatility

Carvana’s strategic infrastructure investments and operational efficiencies position it to dominate the $1.2 trillion used-car market. Its Q1 2025 earnings—scheduled for May 7—will test whether its growth and margin expansion are sustainable.

Investors should weigh:
- Upside: A “Moderate Buy” consensus (16 analysts) and a $4 billion loan partnership with Ally Financial signal confidence in its scalability.
- Downside: The stock’s sensitivity to earnings reports and high valuation may lead to volatility.

Final Take: Carvana is a long-term buy for investors willing to tolerate short-term swings. Its 33% year-over-year retail unit growth, record profitability, and megasite-driven capacity expansion justify optimism—provided it delivers on its Q1 guidance. However, with a P/E ratio over 100, this is not a “set it and forget it” investment.

In conclusion, Carvana’s potential to redefine automotive retail makes it compelling, but success hinges on execution. Stay tuned for May’s earnings call—it could be the next chapter in its story.