Carvana Co. (CVNA): A Bear Case Theory

We came across a bearish thesis on Carvana Co. on Nemonomics’s Substack by Nick Nemeth. In this article, we will summarize the bulls’ thesis on CVNA. Carvana Co.'s share was trading at $390.17 as of July 31^st. CVNA’s trailing and forward P/E were 97.06 and 77.52, respectively according to Yahoo Finance.

Carvana (CVNA) has staged one of the market’s most dramatic comebacks, rebounding from near-bankruptcy in 2022 to a $45+ billion market cap in 2025, following “blowout” Q2 earnings that saw net income of $308 million and 143,280 units sold—up 41% YoY. This turnaround, driven partly by a massive short squeeze, has fueled a rally of over 1000% from its lows, with the stock now trading around $400.

While the market has rewarded Carvana with forward P/E multiples typically reserved for high-growth tech firms (~72×), critics argue this enthusiasm defies the fundamentals of its business. Despite its tech-style branding—exemplified by its car vending machines—Carvana remains a traditional used-car dealer operating in a low-margin, cyclical industry. Its business model, which involves purchasing, reconditioning, and selling used vehicles, doesn’t scale like software and faces logistical, inventory, and pricing challenges common to all auto retailers.

Furthermore, Carvana’s scale isn’t unmatched; CarMax and eBay Motors still move more cars annually, suggesting its growth isn’t as unique as implied. The company’s current valuation dwarfs peers like CarMax and AutoNation, which trade at far more modest earnings and sales multiples.

Even a generous DCF analysis values Carvana closer to $80–$120 per share, raising red flags about its current stock price. With insiders selling shares and market exuberance seemingly ahead of fundamentals, Carvana looks more like a short candidate than a buy. While the Q2 profitability is impressive, it appears fully priced in, leaving little room for upside and significant potential for correction if expectations aren’t continually exceeded.

Previously, we covered a bullish thesis on Carvana Co. by Investing City in May 2025, which highlighted the company’s vertically integrated model, financing capabilities, and shift toward profitability. The company’s stock price has appreciated by approximately 21.8% since our coverage. This is because the profitability thesis played out. Nick Nemeth shares a contrarian view that emphasizes the disconnect between fundamentals and valuation.

Carvana Co. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 90 hedge fund portfolios held CVNA at the end of the first quarter which was 84 in the previous quarter. While we acknowledge the potential of CVNA as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.