Since March 2020, the S&P 500 has delivered a total return of 113%. But one standout stock has more than doubled the market - over the past five years, Carvana has surged 259% to $197.85 per share. Its momentum hasn’t stopped as it’s also gained 13.6% in the last six months thanks to its solid quarterly results, beating the S&P by 17.8%.

Following the strength, is CVNA a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Does CVNA Stock Spark Debate?

Known for its glass tower car vending machines, Carvana (NYSE:CVNA) provides a convenient automotive shopping experience by offering an online platform for buying and selling used cars.

Two Things to Like:

1. Outstanding Long-Term EPS Growth

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Carvana’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.

2. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Carvana’s margin expanded by 30.6 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Carvana’s free cash flow margin for the trailing 12 months was 6%.

One Reason to be Careful:

Change in Retail Units Sold Points to Soft Demand

As an online retailer, Carvana generates revenue growth by expanding its number of users and the average order size in dollars.

Over the last two years, Carvana’s retail units sold, a key performance metric for the company, increased by 5% annually to 114,379 in the latest quarter. This growth rate lags behind the hottest consumer internet applications and is largely a function of its already massive scale and saturated market. If Carvana wants to reaccelerate growth, it likely needs to innovate with new products.

Final Judgment

Carvana’s positive characteristics outweigh the negatives, and with its shares beating the market recently, the stock trades at 15.8× forward EV-to-EBITDA (or $197.85 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More Than Carvana

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