Is Carvana’s 73% Price Surge Justified After Recent Operational Improvements?

If you have ever found yourself watching Carvana’s stock price and wondering, “Is now the right time to make a move?” you are certainly not alone. Carvana has been impossible to ignore over the last couple years, with its share price staging astonishing runs that have tempted traders and long-term investors alike. In the past year, Carvana’s stock is up a staggering 73.4%, and its meteoric climb from three years ago totals a jaw-dropping 2323.7%. Even zooming in, the year-to-date return sits at a remarkable 76.0%. Of course, these big swings are never in a straight line. The last 30 days brought a dip of -6.3%, but the stock has rebounded 5.2% over just the last week. This price action hints at shifting investor sentiment and evolving risk perceptions.

Much of this renewed interest seems tied to news highlighting Carvana’s ongoing efforts to streamline operations, reduce its debt load, and strengthen its competitive position in the used car e-commerce market. Positive headlines about improved liquidity, better-than-expected cost controls, and strategic partnerships all contributed to the narrative of a company that might just be turning a corner.

Yet, when you take a peek at Carvana’s current valuation score, which is a humble 1 out of 6 on our fundamental valuation scale, it suggests that by most traditional measures, Carvana only appears undervalued on a single key metric. This raises an important question for investors: is the market pricing in future growth, or are we missing something crucial?

To really get a handle on whether Carvana deserves a place in your portfolio now, let’s dig into the details of how valuation is typically measured and, ultimately, explore a fresh perspective that goes beyond the usual numbers.

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 (DCF) model estimates a company’s intrinsic value by projecting future cash flows and discounting them back to today’s dollars. This method is widely used because it focuses on the company’s ability to generate true economic value over time, rather than just short-term profits or market multiples.

For Carvana, analysts estimate that its latest twelve-month Free Cash Flow (FCF) stands at $565.5 Million. Looking ahead, projections indicate a dramatic rise in the company’s cash generation, which is forecast to reach as high as $3.1 Billion by 2029. Estimates for the years beyond 2029 are modeled using growth assumptions from Simply Wall St, given that analyst forecasts typically do not extend past five years.

Running these projections through a two-stage Free Cash Flow to Equity DCF model, Carvana’s estimated fair value comes out to $325.11 per share. However, with the current stock price sitting around 8.0% higher than this calculation, the DCF approach suggests shares are about fairly valued at best, neither a screaming buy nor wildly overpriced.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Carvana.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Carvana's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Carvana Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a preferred valuation metric for profitable companies like Carvana because it reveals how much investors are currently willing to pay for each dollar of earnings. When assessing established businesses with positive and growing profits, PE provides a quick way to compare how the market values a firm versus the alternatives.

However, what counts as a "normal" or "fair" PE ratio is heavily influenced by factors such as company growth rate and perceived risk. High-growth or lower-risk companies can justify higher PE multiples, while riskier or slower-growing names typically trade at lower levels.

Carvana's current PE stands at 86.1x, which is far above both the specialty retail industry average of 16.9x and the peer group average of 23.2x. This sharp premium tells us the market has high expectations for Carvana's future growth or sees it as uniquely positioned among peers.

Instead of simply comparing Carvana to peers or the broader industry, the Simply Wall St Fair Ratio takes a tailored approach. This method factors in elements like Carvana’s earnings growth prospects, profit margins, business risks, industry context, and market cap. For Carvana, this Fair Ratio comes to 41.7x, which suggests that given its growth potential and risks, a PE around this level would typically be justified.

Because Carvana’s current PE of 86.1x is more than double its Fair Ratio of 41.7x, the shares look quite expensive on this metric, even after accounting for its growth runway and industry context.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Carvana Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative in investing is simply your personal story or perspective of a company’s future, which ties together your assumptions about its growth, earnings, and risks into a living, financial forecast and a Fair Value estimate. Narratives go beyond static numbers, linking Carvana’s story such as its push into AI, expanding logistics, or evolving industry risks to the future metrics you believe matter most.

On Simply Wall St’s Community page, millions of investors use Narratives to compare their Fair Value with the current Price, helping them decide when to buy, hold, or sell, based on how their assumptions stack up to real market action. The best part is that Narratives are dynamic; they automatically update whenever new information like earnings or news is released, so your insights always stay relevant. For example, one investor might set a bullish Narrative built on rapid digital adoption and forecast a Fair Value near $500, while another, who sees greater competition risk, might estimate a much lower value closer to $330. Narratives make it easy for you to visualize, adjust, and act on your unique view of Carvana, all in one accessible place.

Do you think there's more to the story for Carvana? Create your own Narrative to let the Community know!

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.

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