🔎Carvana: Sorry Jim, you're wrong.🤷♂️
The stock is getting bodied after its FY25 earnings release. Bears have the upper hand right now. They own the conversation in the digital townhall. However, their actual points are surprisingly weak.
Carvana just reported 2025 full year earnings. The stock is down more than 20% in AH trading as of this writing. Bears are taking victory laps online. This astonishing single stock bubble is finally popping…
Hold on, not so fast!
The situation is much more nuanced. There is in fact much to like about Carvana. This stock is a fascinating case study about management execution, story telling and groupthink. This earnings release is a fantastic opportunity to take a fresh look.
I covered the stock for the first time about two years ago. Just like today, Carvana was one of the most controversial stocks out there. People hated their business model and they ridiculed their valuation.
Back then, I highlighted that the company had been navigating the brutal used car market recession surprisingly well and that there was cyclical upside ahead. This made me cautiously optimistic in spite of valuation concerns.
The stock has continued to perform insanely strong since then. Even with this 20% post-earnings drop, it’s still up another 250% compared to the time I published my article. The company is now worth $80bn. At an LTM net profit of $857m, this puts their LTM P/E ratio at 93x.
TLDR Summary
In addition to valuation concerns, bears take two main issues with Carvana: Firstly, they argue that their core business (i.e. buying and selling cars) is not profitable. They allegedly only make money by originating and securitizing loans. Secondly, the company is allegedly offloading leverage and economic risks to affiliates which artificially boosts their fundamentals and drives the stock far above a fair level. Both of these bear arguments fail to withstand scrutiny.
Firstly, the latest earnings were very strong. In 2025, the company generated $700m in operating profit excl. gain on loan sales. This voids much of the first half of the bear case. And what’s left of it makes little sense anyway. Making money by finding loan customers is neither illegitimate nor unsustainable. Loan brokerage is in fact a central function in our financial system. From commercial banks to mortgage brokers and even automotive OEMs, billions of dollars of profits are generated that way every year and trillions of dollars of market cap are supported by that activity. Doing that successfully is one of Carvana’s key strengths.
Secondly, there is no indication that Carvana’s business with DriveTime is happening at inflated prices. DriveTime is profitable. Its lenders will be careful not to be screwed over. And even if Carvana took advantage of DriveTime, this would be for the benefit of Carvana’s minority shareholders. What a weird way of defrauding them.
The short seller accusations floating around are absurd. Does that make the stock an instant buy? Of course not. Its valuation is still very rich. But if we know one thing from recent history: Category definers are scarce and you rarely get them cheap.
