What Makes Carvana (CVNA) an Investment Bet?

Sands Capital, an investment management company, released its “Sands Capital Select Growth Strategy” Q2 2025 investor letter. A copy of the letter can be downloaded here.  U.S. large-cap growth equities recovered from a sharp sell-off in early April by delivering strong returns in the second quarter. The quarterly performance was driven by muted inflation, strong corporate earnings, and improving sentiment around artificial intelligence (AI) and global trade. The portfolio returned 27.7% in the quarter, outperforming the benchmark Russell 1000 Growth Index's 17.8% gain. You can check the fund’s top 5 holdings to know more about its best picks for 2025.

In its second-quarter 2025 investor letter, Sands Capital Select Growth Strategy highlighted stocks such as Carvana Co. (NYSE:CVNA). Headquartered in Tempe, Arizona, Carvana Co. (NYSE:CVNA) is an e-commerce platform for buying and selling used cars. The one-month return of Carvana Co. (NYSE:CVNA) was 1.62%, and its shares gained 138.95% of their value over the last 52 weeks. On September 15, 2025, Carvana Co. (NYSE:CVNA) stock closed at $365.35 per share, with a market capitalization of $42.727billion.

Sands Capital Select Growth Strategy stated the following regarding Carvana Co. (NYSE:CVNA) in its second quarter 2025 investor letter:

"In addition to these portfolio adjustments, Select Growth initiated positions in Carvana Co. (NYSE:CVNA) and Arthur J. Gallagher (AJG). Carvana continues to execute well, gaining share in the large and fragmented used-car market.

Carvana is the world’s largest ecommerce used car retailer by revenue. The business seeks to transform the used car industry, which is massive, fragmented, and characterized by a complicated customer experience. Used cars are one of the largest consumer verticals—with over $1 trillion in annual sales—but only a low single-digit percentage of vehicles is purchased online today. The industry is also highly fragmented, with the current market leader accounting for a roughly 2 percent share. The buying process is often emotional, cumbersome, and anxiety inducing, which is worsened by low trust in traditional salespeople. Carvana seeks to improve this process through its vertically integrated platform, which provides a radically different experience through convenience, transparency, and competitive prices. Nationwide scale and verticalization also result in attractive unit economics, which we believe will drive strong margin expansion over our investment time horizon. Ultimately, we expect Carvana—by providing a service that is faster, better, and cheaper than brick-and-mortar car dealerships—to consolidate a significant portion of used car sales moving forward as more transactions shift online.

We believe a small weight is appropriate given the wide range of potential outcomes, while also allowing flexibility to add opportunistically if the macroeconomic environment deteriorates. In our view, the business remains early in its growth curve and stands to benefit from tariffs, as higher new car prices and limited new vehicle supply increase demand for used cars. However, potential second-order effects—such as weaker consumer demand or rising parts inflation—could put pressure on both earnings and valuation. While we believe the likelihood of a downside scenario is lower, the potential impact is greater than for other businesses we own, due to the compounding risks associated with Carvana’s vehicle financing operations.

Carvana is on firmer ground today than during our prior ownership in 2021–2022. It is now the most profitable U.S. car dealer, and solvency concerns have abated. Leverage is in line with traditional dealers, and structural improvements have driven stronger free cash flow generation."

Carvana Co. (NYSE:CVNA) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 91 hedge fund portfolios held Carvana Co. (NYSE:CVNA) at the end of the second quarter, compared to 90 in the previous quarter. While we acknowledge the potential of Carvana Co. (NYSE: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.

In another article, we covered Carvana Co. (NYSE:CVNA) and shared the list of best automotive stocks to buy according to hedge funds. In Q2 2025, ClearBridge Mid Cap Growth Strategy re-established a position in Carvana (NYSE:CVNA) following its successful restructuring, growth, profitability, and strategy to disrupt fragmented auto market. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.