Carvana's Rough Start to 2026 Post Stellar 2025: How to Play the Stock

Used car e-retailer Carvana Inc. CVNA had an impressive run on the bourses last year, being the top-performing auto retail stock of 2025. In fact, Carvana has really been one of the comeback darlings of Wall Street. From being on the brink of collapse in 2022, Carvana has been making tangible progress on operational and financial fronts and is now the second-largest used car retailer in the United States. Investors should note that Carvana holds just a 1.6% share of the highly fragmented U.S. automotive retail market. This suggests that there is ample room for the company to expand, especially as more consumers gravitate toward online car buying. 

The company’s strategic pivot toward efficiency has been paying off. Carvana has been steadily delivering on its promises—and it’s showing in the numbers. CVNA’s retail sales units in 2025 grew 43% year over year to 596,006 and revenues witnessed a year-over-year jump of 49% to more than $20 billion. Adjusted EBITDA increased over 60% to $2.2 billion, with margins improving from 10.1% to 11% in 2025. Carvana’s cash from operating activities in 2025 was more than $1 billion, up from $918 million in 2024, signaling that the business is generating real cash.

While CVNA stock more than doubled last year, shares have declined 25% on a year-to-date basis. Carvana has also underperformed the industry as well as peers like CarMax KMX and Sonic Automotive SAH year to date. Shares of CarMax and Sonic Automotive inched up 9% and 4%, respectively, over the same timeframe.

Although Carvana’s fourth-quarter 2025 results topped expectations on both earnings and revenues, the market reaction has been muted, with the stock sliding more than 12% since the release. This raises an important question: Is the pullback merely profit-taking, or are investors becoming cautious about emerging headwinds? Let’s take a closer look at what might be weighing on sentiment and assess whether the stock is worth buying or holding now.

Carvana Co. Price, Consensus and EPS Surprise

Carvana Co. price-consensus-eps-surprise-chart | Carvana Co. Quote

CVNA’s Growth Ambitions Meet Execution Challenges

Despite strong growth momentum, some developments in Carvana’s latest results highlight near-term challenges that investors should keep an eye on.

One of the biggest concerns was a spike in reconditioning costs in the fourth quarter. Reconditioning— the process of preparing used vehicles for sale— is a critical part of Carvana’s operations. Part of the pressure seems tied to Carvana’s rapid expansion of its vehicle-preparation network. As the company adds new facilities and ramps up inventory, some of the newer sites are still working through early operational inefficiencies. This has pushed reconditioning expenses higher and pressured profit per vehicle in the last reported quarter. While management believes these issues are temporary, it underscores that Carvana’s rapid growth strategy can sometimes create operational volatility. Carvana expects reconditioning costs to remain high in the first quarter of 2026.

Another factor that might have weighed on sentiment was the company’s somewhat vague guidance. While Carvana said 2026 should see “significant growth” in retail units sold and adjusted EBITDA, its guidance lacked specifics. The company expects sequential increases in retail units sold, adjusted EBITDA and retail gross profit per unit in the first quarter, which is typical for the seasonally stronger start to the year. Still, the lack of clear targets may make investors cautious.

Carvana also continues to face structural risks inherent to the used-car retail business. These include managing a large inventory of rapidly depreciating vehicles and the cyclical nature of demand for big-ticket discretionary purchases.

Meanwhile, the company has also come under external scrutiny. A recent short report from Gotham City Research alleged that Carvana overstated earnings through related-party transactions tied to businesses connected to CEO Ernie Garcia III’s family.

At the same time, the company is continuing to build its infrastructure. Carvana now operates 34 reconditioning locations with the capacity to process about 1.5 million vehicles annually, with the network designed to eventually support up to 3 million retail units per year. Carvana has been integrating the ADESA auction sites it acquired earlier, bringing 10 locations into its network in 2025 and planning to integrate another six to eight sites in 2026 to further strengthen its logistics and vehicle sourcing capabilities.

Carvana’s Valuation & Estimates

The Zacks Consensus Estimate for CVNA’s 2026 revenues implies growth of 31% year over year. The consensus mark for 2026 EPS implies a 16% decline from 2025. The estimates have moved south in the past 30 days.

On the valuation front, Carvana is trading at a forward sales multiple of 2.48—above the industry levels as well as its own five-year average. In contrast, CarMax and Sonic Automotive trade at just 0.23X and 0.14X, respectively. CVNA is pricey.

Conclusion

Carvana’s turnaround story remains compelling, with the company making tangible progress in scaling operations and strengthening its long-term growth platform. Investors should watch a few key factors closely— improvement in reconditioning costs as newer facilities mature, deeper use of AI-driven tools to streamline operations, progress in gross profit per unit and the pace of unit sales growth as Carvana aims to capture a larger share of the fragmented market.

However, near-term cost pressures, downward earnings estimate revisions and a relatively rich valuation suggest caution. While the long-term fundamentals remain intact, the stock may face volatility in the near term. Investors may be better off waiting for a more attractive entry point.

CVNA stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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