Carvana Co (CVNA)

Conclusion

Carvana Co operates an online marketplace for used cars, covering vehicle acquisition, reconditioning, online search, financing, logistics and post-sale support. The shares closed at 76.26 USD on 2026-11-09, giving a market capitalisation of 55.1 billion USD.

The verdict is overvalued. The fair value band runs from 17.56 to 26.34 USD with a midpoint of 21.95 USD, a margin of safety of -71.2% at the current price. The discounted cash flow gives 21.95 USD per share at a discount rate of 17.4%. The current P/E is 32.3 and EV/EBITDA is 141.7, and no ten-year median is available to set these against. The reverse DCF implies growth of 35.9% a year, while revenue has grown at 29.5% a year over five years and 14.3% over three.

What holds the case up is the long record of revenue growth, at 65.7% a year over ten years with nine of ten years growing, a gross margin of 19.0% against a ten-year median of 12.9%, and free cash flow after stock-based compensation of 1.016 billion USD over the last twelve months. What would break it is the weak debt coverage, with interest coverage of 0.34 and net debt to EBITDA of 6.3x, a return on invested capital of 1.6% against a weighted cost of capital of 16.3%, and a share count that has risen 28.1% a year over five years.

Financial health

Financial strength is red: the current ratio of 4.05 and an Altman Z-score of 5.89 hold it up, while net debt to EBITDA of 6.3x and interest coverage of 0.34 pull it down. The quick ratio is 2.00 and debt to equity is 1.29. Interest coverage is weak because operating earnings cover interest only 0.34 times. The Altman model was designed for manufacturers, and Carvana is a retailer, so its zone of safe is indicative only. Insolvency risk: low, about 0.5% by the estimate of the Ohlson model over one to two years. The company does not report its debt maturity schedule, so refinancing risk cannot be judged here.

Earnings quality

Earnings quality is red, because free cash flow conversion over five years is negative at -740.6%, and share dilution is high. Over the last twelve months, free cash flow conversion is 65.2%, and accruals are 3.4% of the balance sheet, a moderate level. Stock-based compensation is 0.35% of revenue. The five-year share count compound growth of 28.1% means shareholders have been diluted, not helped by buybacks. The Piotroski score is 6 out of 9. The Beneish M-score is not available. The company beat estimates in 5 of its last 8 quarters, with an average surprise of 90.1%. Current-year estimates rose 5.2% over 90 days, while next-year estimates fell 6.6%.

Profitability

Profitability is yellow, held up by the gross margin of 19.0% and the operating margin of 8.7%, both above their ten-year medians of 12.9% and -6.5%. The net margin is 6.2%, against a median of -2.5%. Margin stability is 1.59. The weakness is returns: return on invested capital is 1.6% against a weighted cost of capital of 16.3%, a return on invested capital minus weighted cost of capital of -14.7%, which means the business destroys value at present. Return on equity of 39.2% is inflated by leverage. The DuPont split shows a net margin of 6.9%, an asset turnover of 1.54 and an equity multiplier of 3.84, so most of the return comes from borrowing.

Growth

Growth is green, supported by revenue compound growth of 29.5% over five years, 14.3% over three years and 65.7% over ten years. Revenue grew in nine of the last ten years. Next-year earnings growth is estimated at 39.5%. Earnings per share compound growth is not available, so growth in profit cannot be measured over the full period. Growth has slowed from its ten-year pace: the three-year rate of 14.3% is well below the five-year rate of 29.5%, which matters for the reverse DCF.

Valuation

Valuation is red. Today's multiples are a P/E of 32.3, EV/EBITDA of 141.7, price to free cash flow of 49.5, price to sales of 2.0 and price to book of 12.7, with a free cash flow yield of 2.0% and an earnings yield of 3.1%. Ten-year medians for these multiples are not available, so no premium or discount can be stated. The discounted cash flow gives 21.95 USD per share at a discount rate of 17.4%, with growth of 20% for the first stage and 2.5% in perpetuity. The fair value band is 17.56 to 26.34 USD. The fair value from historical multiples is not available. The reverse DCF implies growth of 35.9%, compared with five-year revenue growth of 29.5%, a gap of 6.4% as given. The company pays no dividend. The fair value is an order-of-magnitude estimate built on fixed assumptions, not a price target.

Risks

The most serious risk is leverage: net debt to EBITDA of 6.3x and interest coverage of 0.34 leave little room if operating earnings fall. A decline in revenue growth would weigh on the reverse DCF, since the price already implies 35.9% annual growth. Continued dilution at a 28.1% five-year share count rate would reduce each shareholder's claim on future cash flow. The return on invested capital of 1.6% below the cost of capital of 16.3% means growth adds little value until returns improve. The Beneish M-score, earnings per share growth, the fair value from historical multiples and the ten-year medians for valuation multiples are not available. The company does not report its debt maturity schedule or revenue by segment. The price history is too short for some measures, one historical data point was discarded, and the tax rate was assumed at 21%. This analysis cannot see the company's debt terms, competitive position or management plans.