In 2025, Carvana delivered a striking performance in the stock market, with shares appreciating by over 100% year to date. This turnaround is notable considering the company's previous status as a heavily leveraged enterprise perceived as carrying significant risk. Today, it registers record-breaking sales volumes accompanied by substantial profitability, reflecting profound improvements in its business operations.
The company's dynamic retail growth was highlighted in its third-quarter update, which revealed a 44% year-over-year increase in retail cars sold, reaching 155,941 units. This growth rate showed acceleration compared to the preceding quarter's 41% rise. Moreover, revenue figures outpaced unit sales growth, with third-quarter revenue climbing 55% year over year to approximately $5.65 billion.
Carvana's profitability metrics further illustrate its business evolution. The third quarter saw net income of $263 million, translating to a net income margin of 4.7%. Operating income stood at $552 million, and EBITDA reached $637 million, representing a $208 million increase compared to the same period the previous year.
The company has also succeeded in maintaining strong gross profit per retail unit amid rapid expansion, with a slight decline of just $65 year over year, settling at $7,362 per unit in the fourth quarter of 2025. This suggests disciplined growth strategies underpinning Carvana's expanding footprint.
Carvana's founder and CEO, Ernie Garcia, emphasized in the third-quarter earnings release that the company remains focused on leveraging the strategic benefits of its vertically integrated model. This model is credited with driving enhancements in speed, selection, convenience, and operational efficiency. Garcia expressed optimism about future opportunities available as these initiatives mature.
Despite these successes, Carvana's management pointed out in its third-quarter shareholder letter that the firm retains a modest share of the broader automotive market - capturing only about 1.5% of the U.S. used car market and about 1% of the entire U.S. car market. This underscores significant room for market expansion.
Looking forward, the company forecasts fourth-quarter retail unit sales exceeding 150,000 vehicles. Additionally, Carvana expects to achieve full-year 2025 adjusted EBITDA near or surpassing the upper limit of its forecasted range between $2.0 billion and $2.2 billion.
However, the juxtaposition of robust underlying business indicators with the stock's current valuation presents a complex investment narrative. At present, shares trade at a notably high price-to-earnings (P/E) ratio of 99, with a forward P/E ratio estimated at 65. Such multiples often reflect elevated investor expectations, warranting scrutiny over whether the business can sustain the pace required to justify them.
On the growth front, Carvana continues substantial investments aimed at future capacity expansion. The company intends to conclude 2025 with an annual retail production capacity exceeding 1.5 million units, inclusive of integration with ADESA, its wholesale auto auction division. This target size represents approximately 2.5 times the current retail sales volume. Management plans to maintain a similar rate of integrating ADESA facilities in 2026 while initiating full-scale development at selected sites.
Given these factors, the potential for Carvana's stock to continue ascending in 2026 is present, yet tempered by significant risks. Should sales growth decelerate or fail to meet heightened market expectations, share prices could correspondingly decline. The predominant analytical challenge lies in assessing whether current valuations accurately reflect intrinsic value or represent overextension.
In summary, while operational momentum and strategic expansions underpin Carvana's business strength, the stock appears somewhat overvalued against underlying fundamentals at this juncture. Investors may wish to consider these aspects carefully before initiating new positions in the stock.