Last Update 25 Jan 26

Fair value Increased 15%

CVNA: TAM Expansion And S&P 500 Inclusion Will Shape Future Execution Risk

Analysts have lifted their implied fair value for Carvana by about $62 per share to roughly $481, citing a higher assumed future P/E multiple and an improved profit margin outlook, supported by recent price target increases and total addressable market expansion themes across several research notes.

Analyst Commentary

Bullish and cautious views on Carvana are both coming through in recent research, and they often tie back to how much value analysts see in the company’s expansion efforts and its ability to execute against that opportunity.

Bullish Takeaways

Bullish analysts point to the company’s push beyond used cars, including new car sales in the Bay Area and acquisitions of new car dealerships, as a key reason for higher price targets and a higher implied fair value.
Several research notes highlight total addressable market expansion, including potential exposure to autonomous and electric vehicles, as an important driver supporting richer P/E assumptions.
Supportive analysts frame Carvana’s e-commerce platform and pricing as competitive in a highly fragmented used vehicle market, which they view as helpful for long term unit growth expectations.
Some see prior share price pullbacks as an entry opportunity, arguing that their valuation work suggests limited downside relative to their targets.

Bearish Takeaways

Even bullish analysts flag that new car initiatives are expected to remain a small portion of the business in the near term, which can cap how quickly TAM expansion flows into earnings.
There is awareness of potential competitive pressure from online auto channels such as Amazon Autos, with at least one view that any material impact on unit volumes could be delayed but still worth watching.
Some commentary implies that unit guidance and growth expectations carry execution risk, as they rely on the company continuing to scale both its software and physical infrastructure efficiently.
Higher price targets and richer assumed multiples make the valuation more sensitive to any disappointment in margins or volume trends, so skeptics may see less room for error at current implied levels.

What's in the News

Carvana Co. (NYSE: CVNA) is being added to the S&P 500, with related inclusions in several S&P indices such as S&P 500 Growth, S&P 500 Value, S&P 500 Consumer Discretionary and S&P 500 Automotive Retail, which can influence how index and benchmarked funds gain exposure to the stock (Key Developments).
The company is also being added to the S&P Global 1,200 and S&P Composite 1,500, expanding its presence across broader global and U.S. equity benchmarks that many institutional investors track (Key Developments).
Carvana is set to join the S&P 500 Equal Weighted Index, which can matter for investors who use equal weight products instead of traditional cap weighted index funds (Key Developments).
Carvana is being dropped from the Russell Small Cap Comp Growth Index, which may shift some ownership between small cap and large cap or broad market index products (Key Developments).
Outside of indices, Carvana announced a new multi year partnership with Stanford Athletics and extended its motorsports branding with a new Daytona paint scheme for Jimmie Johnson, signaling continued focus on marketing and brand visibility with sports fans (Key Developments).

Valuation Changes

The implied fair value per share has risen from about US$419.45 to about US$481.27, a move of roughly US$62 per share.
The discount rate has edged up from about 8.42% to about 8.57%, indicating a slightly higher required return in the updated assumptions.
Revenue growth has been trimmed from about 26.79% to about 24.91%, reflecting more conservative top line expectations in the model.
The net profit margin has been lifted from about 6.37% to about 7.10%, implying a more optimistic view on future profitability.
The future P/E multiple has increased from about 37.43x to about 40.47x, indicating a richer valuation assumption on projected earnings.

Online buying trends and digital adoption support Carvana's long-term growth, aided by demographic shifts toward convenience and e-commerce.
Technology improvements and logistics investments drive cost efficiencies and margin expansion, while new services increase recurring revenue and earnings stability.
Ambitious growth and expansion plans face operational, marketing, and industry risks that could pressure profitability, especially amid intensifying digital competition and used vehicle pricing volatility.

Catalysts

About Carvana

Operates an e-commerce platform for buying and selling used cars in the United States.What are the underlying business or industry changes driving this perspective?

The acceleration in consumer preference for purchasing vehicles online and increased comfort with high-value e-commerce transactions positions Carvana to capture a larger share of the used vehicle retail market, supporting outsized long-term unit and revenue growth.
Ongoing advancements in Carvana's data-driven technology, including integration of AI for operational efficiency and customer-facing processes, enable continual process improvement, reducing per-unit costs and fueling net margin expansion.
The company's scaled logistics and reconditioning infrastructure, bolstered by the integration of ADESA locations, is driving lower delivery and inbound transport costs; as utilization rises, these investments are expected to further enhance operating leverage, improving gross margins and profitability.
Expansion into ancillary products, such as auto financing and service contracts-leveraging proprietary customer and vehicle data-supports higher average revenue per user, stronger recurring revenue streams, and greater earnings stability.
Demographic tailwinds from younger cohorts preferring convenience, digital experiences, and word-of-mouth-driven brand amplification will provide a growing, loyal customer base, providing fundamental support for sustained high revenue growth rates and improved profitability over time.

Carvana Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Carvana's revenue will grow by 26.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 3.5% today to 6.5% in 3 years time.
Analysts expect earnings to reach $2.2 billion (and earnings per share of $8.77) by about September 2028, up from $563.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.5 billion in earnings, and the most bearish expecting $902.9 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 65.2x on those 2028 earnings, down from 92.0x today. This future PE is greater than the current PE for the US Specialty Retail industry at 18.7x.
Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.3%, as per the Simply Wall St company report.

Carvana Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Carvana's strategy to achieve significant growth (targeting a 40%+ annual unit growth rate for up to 5 years) is highly ambitious, and sustaining such scale could encounter operational bottlenecks, particularly in reconditioning and logistics, risking cost overruns and margin compression, which would negatively impact net margins and profitability.
The company acknowledges that its current and planned expansions, especially related to ADESA site integrations and increased inventory selection, are a near-term investment and run below optimal utilization, resulting in higher operating costs per unit; delays in ramping utilization or unexpected inefficiencies could pressure net income and overall operating margins.
Carvana plans to increase marketing, particularly brand campaigns, to fuel long-term growth, but these investments have uncertain returns and immediate impacts on profitability; an inability to efficiently convert higher advertising spend into lasting revenue growth could deteriorate earnings before scale advantages are realized.
Industry-wide, the shift toward more expensive vehicles and fluctuating used car pricing-exacerbated by tariffs, supply chain disruptions, or market normalization-could both reduce volume growth (fewer buyers able to afford higher ASPs) and increase inventory valuation risk, with direct consequences on top-line revenue and gross margins.
Competitive risk remains significant as traditional dealers are accelerating their digital transformation and as new entrants scale their digital-native used car models; if Carvana fails to maintain differentiated experiences, proprietary data advantages, or financing innovation, its customer retention and pricing power could erode, leading to slower revenue growth and pressure on net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $414.2 for Carvana based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $500.0, and the most bearish reporting a price target of just $330.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $33.2 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 65.2x, assuming you use a discount rate of 8.3%.
Given the current share price of $375.0, the analyst price target of $414.2 is 9.5% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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