What Has Carvana (CVNA) Stock Done for Investors?

Carvana (NYSE: CVNA) has been one of the most divisive companies on the market in recent years. Critics have said it operates an unsustainable business model that relies heavily on favorable credit markets to survive. Then there are the bulls that point to Carvana being an innovative disruptor that will continue taking share in the used car industry.

Let's take a look at Carvana's performance to see which group's views have proven to be correct. What has this online car retail stock done for investors?

Image source: Carvana.

Carvana shares have made for a wildly successful investment

Carvana shares have underperformed the market in the past five years, putting up a gain of 79% (as of Dec. 15). This comes up short of the S&P 500's total return of 101% over the same time period.

Looking at shorter time horizons paints a better picture for Carvana. In the past three years, the stock has skyrocketed 8,420%. And over the last 12 months, it's up 80%. Both of these figures significantly exceed the broader market.

Carvana shares hit their low point of $3.72 in late December 2022. That year, investors were rightfully concerned that the business was on the brink of bankruptcy, as debt rose after the $2.2 billion acquisition of ADESA. Carvana's growth had also slowed dramatically, thanks to a combination of higher interest rates and inflationary pressures.

Management focused relentlessly on cost cuts and operational efficiencies, while also refinancing debt. Carvana's financial results have also been encouraging, which have helped propel monster gains for the stock.

Unit volume and revenue jumped 44% and 55%, respectively, in Q3 (ended Sept. 30) on a year-over-year basis. Long-term debt totaled $5.5 billion, down from a peak of $7.5 billion in 2022. And Carvana is consistently profitable on a generally accepted accounting principles (GAAP) basis.

Is it too late for investors to buy?

After seeing such a monumental gain, investors are probably thinking that they missed the boat. After all, the business sports a market cap of just under $100 billion. And the market's enthusiasm has never been higher.

Carvana continues to stare at a massive opportunity in the domestic used car market, which saw 36 million transactions in 2023. As it builds more scale, it can serve more of the population and see its sales and profits rise.

The valuation is expensive, though, with shares trading at a price-to-sales ratio of 3.5. This is not far off the stock's most expensive multiple, which was reached during the 2021 bull market.

Investors who decide to buy Carvana today run the risk of overpaying. Maybe it's best to wait for a pullback.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.