Carvana Stock Plunges After Earnings. Warning Sign or Buying Opportunity?

Carvana (NYSE: CVNA) has been one of the best-performing stocks of the last three years.

After avoiding bankruptcy at the bottom of the 2022 bear market, the online used car dealer stock has gained 700% over the last three years, and is up even more from its bottom. Worth noting: At the depths of that decline, it was down more than 98% from its peak.

However, Carvana cut costs, restructured its debt, scaled back on its inventory and aggressive growth tactics, and rightsized the business.

Now, its revenue growth has steadily improved since its nadir in Q1 2023, clocking 55% growth in 2025's third quarter to $5.65 billion, a new quarterly record for the company and crushing the analysts' consensus estimate of $5.1 billion. On the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 45% to $429 million, and GAAP (generally accepted accounting principles) net income rose 78% to $263 million, or $1.03 per share. With adjustments for a decline in value of its Root warrants, earnings per share were $1.50, ahead of the $1.32 consensus estimate.

Despite the strong results, Carvana's stock actually pulled back on the report due to more general fears about rising auto loan delinquencies, narrowing margins, and guidance that could indicate a sequential decline in retail unit sales. Management called for retail unit sales of at least 150,000 in the fourth quarter, which would be down from 155,941 in the third quarter. However, the fourth quarter is typically the weakest seasonally for vehicle sales.

The stock finished down 14% Thursday on the news.

Image source: Carvana.

This looks like more of a buying opportunity than a warning sign

Carvana's stock is expensive today -- it set new highs again earlier this fall -- but a premium makes sense for a stock that just posted revenue growth of 55%, and for a company that's disrupting the used car market in pursuit of its share of an addressable market that is valued at close to $1 trillion. Carvana is aiming to sell 3 million vehicles in the next five to 10 years and to earn an adjusted EBITDA margin of 13.5%.

While the third-quarter results weren't perfect, they were still strong. Narrowing margins aren't a warning sign on their own, and they seem to be a result of changes in depreciation from quarter to quarter. Meanwhile, lower interest rates should benefit the company as well.

Two bankruptcies in the auto industry have rattled investors, but Carvana's balance sheet looks solid with $2.1 billion in cash. A wave of car loan delinquencies could even favor Carvana, as it could put smaller and less nimble competitors out of business.

The stock is likely to remain volatile, but the long-term picture still looks strong for Carvana, whatever happens in the industry in the coming months.

Jeremy Bowman has positions in Carvana. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.