KMX or CVNA: Is the Value Play Better Than the Growth Stock Now?

Rising affordability pressures are beginning to reshape the U.S. auto market. According to Cox Automotive, new-vehicle sales are expected to decline year over year as higher prices and borrowing costs continue to weigh on buyers. As a result, consumers are expected to turn to the used-vehicle market for more affordable options— creating opportunities for companies operating in this space.

Two of the most prominent players in the used vehicle industry are CarMax KMX and Carvana CVNA. While both compete in the same market, their business models look quite different. CarMax brings scale, backed by a nationwide store network and a mix of physical and digital sales channels. Carvana, meanwhile, is a pure online player known for its digital-first car-buying experience and signature vehicle vending machines—and it has been growing rapidly.

The market has rewarded these companies very differently over the past year. CarMax shares have fallen about 42%, while Carvana stock has surged roughly 78%.

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Valuations also tell contrasting stories. Carvana trades at a forward sales multiple of around 2.46x, far above CarMax’s roughly 0.23x.

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So is CarMax a bargain after the pullback, or does Carvana still have room to extend its rally? Let’s dive deeper to see which stock looks like the better bet right now.

The Case for CarMax

CarMax is the largest retailer of used vehicles in the United States. Beyond vehicle sales, the company generates additional revenues through financing offered by CarMax Auto Finance as well as services like extended protection plans, vehicle repairs, auctions and reconditioning. This integrated retail and wholesale model allows CarMax to capture value across multiple stages of the used-car transaction while operating through both physical stores and digital channels.

The company’s third-quarter fiscal 2026 results were mixed. While earnings and revenues came in ahead of expectations, both declined year over year as used-vehicle demand softened. Retail used-vehicle net sales fell 8% and comparable store used-vehicle units declined 9%. However, the financing segment remained a bright spot, with CarMax Auto Finance generating $174.7 million in income, up more than 9% year over year, continuing to anchor overall profitability.

A key strength of the company lies in its nationwide footprint and logistics network. With stores spread across the country, CarMax can source, prepare and distribute vehicles at scale. The company has also been expanding reconditioning centers closer to the markets where vehicles are sold. This helps reduce transportation costs, speeds up the movement of inventory and allows cars to reach stores faster. Over time, these improvements should support better inventory efficiency and lower operating costs.

CarMax has also been strengthening its ecosystem through acquisitions and partnerships. The purchase of Edmunds has enhanced its digital capabilities and added valuable automotive data and consumer insights. Meanwhile, its collaboration with Recurrent provides deeper insights into used EV battery health, helping the company build credibility in the growing market for used electric vehicles.

Operational discipline is another pillar of the company’s strategy. Management is targeting at least $150 million in SG&A run-rate savings by fiscal 2027, with early steps already underway through workforce reductions and technology-driven process improvements in customer experience centers.

The company is also returning significant capital to shareholders through buybacks, repurchasing $201.6 million of stock in the last reported quarter and leaving $1.36 billion authorized for future repurchases.

The Case for Carvana

Carvana is now the second-largest used car retailer in the country. Despite its growing scale, the company still holds only about 1.6% of the highly fragmented U.S. automotive retail market. This relatively small share suggests that the company still has significant room to expand.

The company’s recent performance reflects strong momentum. In 2025, Carvana’s retail sales units rose 43% year over year to about 596,000 vehicles, while revenues jumped 49% to more than $20 billion. Profitability also improved meaningfully, with adjusted EBITDA climbing more than 60% to $2.2 billion and margins expanding from 10.1% to 11%. These results highlight the company’s ability to scale its operations while improving unit economics.

However, rapid expansion has also brought some operational pressures. In the fourth quarter of 2025, reconditioning costs — the expenses associated with preparing used vehicles for sale — increased noticeably. These higher costs partly reflect Carvana’s ongoing expansion of its vehicle-preparation network. As the company opens new facilities and increases inventory throughput, some of these sites are still working through early operational inefficiencies. This has pushed up reconditioning expenses and weighed on profit per vehicle in the latest quarter.

Another factor investors are watching is the company’s somewhat vague outlook. While Carvana expects “significant growth” in retail units sold and adjusted EBITDA in 2026, the guidance lacks detailed targets. The company anticipates sequential improvement in retail units sold, adjusted EBITDA and retail gross profit per unit in the first quarter of 2026, which aligns with the seasonally stronger start to the year.

At the same time, management remains confident in the long-term growth runway. Carvana believes strong customer demand and operating improvements could eventually support sales of 3 million vehicles annually. The company already owns real estate capable of supporting that scale and has invested in facilities that can process about 1.5 million vehicles per year.

Why KMX Looks Like the Better Bet Now

Both CarMax and Carvana are positioned to benefit from the demand for used vehicles.

Carvana clearly stands out in terms of growth. The company is rapidly expanding sales volumes, improving EBITDA and continuing to gain share in a fragmented market. But that growth story also comes with some trade-offs. The recent spike in reconditioning costs highlights the operational volatility that can arise when a company is scaling aggressively. At the same time, the stock’s premium valuation suggests that much of this growth optimism may already be priced in.

CarMax, on the other hand, represents a more stable and value-oriented opportunity. While recent sales trends have been soft, the company benefits from a well-established nationwide network, a diversified revenue model and a profitable financing arm that supports earnings even during cyclical slowdowns. Ongoing cost-cutting initiatives, logistics improvements and continued share buybacks could also help strengthen margins and shareholder returns over time.

When valuation is added to the equation, CarMax looks like a steal deal. With CarMax trading at a fraction of Carvana’s forward sales multiple, investors are effectively paying far less for a business with scale, operational infrastructure and multiple profit drivers. CVNA has a Value Score of D, while KMX has a Value Score of A.

As such, we think CarMax offers a more balanced risk-reward profile at current levels, making it a better investment choice now. While KMX carries a Zacks Rank #2 (Buy), CVNA is #3 Ranked (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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This article originally published on Zacks Investment Research (zacks.com).

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