Investors are probably familiar with the latest developments with online used car retailer Carvana (CVNA -6.78%). Benefiting from the low interest rate environment for most of the past decade, the business posted stellar growth, only to hit a brick wall in 2022 when inflation soared and interest rates climbed. It's stuck in a difficult financial position, and its future is highly uncertain. 

But let's simply assume that Carvana, whose shares are down a whopping 98% from their all-time high, can successfully navigate the current unfavorable macroeconomic environment without a major financial restructuring (to be fair, this is a big question mark). If this happens, though, the question to ask is: Where will this once popular growth tech stock be in five years in an optimistic scenario? The answer might surprise you. 

Rapidly gaining market share 

Despite the monumental slowdown that happened last year, Carvana's monster gains cannot be denied. Five years ago, in 2017, the company sold 44,000 cars and registered revenue of $859 million. Fast forward to 2022, and Carvana's retail units sold totaled 412,000 and its revenue was $13.6 billion. These are incredible gains. It's hard to find any business that grew that quickly in such a short amount of time. Also, keep in mind that this is not some software enterprise. 

Carvana's leadership team, led by founder and CEO Ernie Garcia III, saw an opportunity to completely upend the way used cars are sold in the U.S. The traditional brick-and-mortar dealership model is broken, with limited inventory to choose from, a burdensome and timely process, and the need for customers to haggle with salespeople. As is the case with many physical products, management thought that cars could follow the path of e-commerce penetration. Shopping online is usually just a better experience for the customer. 

There are roughly 40 million used cars sold in the U.S. in any given year, giving Carvana a tiny 1% share based on 2022's data. Looking out five years, Carvana's market share could be much higher than it is today, given that it is still very early in fully penetrating different markets across the country. 

Achieving profitability 

With a greater market share in an industry that is valued at $1.2 trillion, Carvana's sales will continue on their path to reaching higher levels over time. And this is exactly what the management team needs to happen for the company to reach its financial targets. Over the long term, Carvana's goal is to achieve an EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of between 8% and 13.5%, which would be a substantial improvement from the 2022 EBITDA margin of -15.4%. 

Carvana bears will quickly say this is extremely unlikely, as it depends on very favorable conditions in the capital markets. What's more, the company's operations are capital intensive in that a lot of money is needed to invest upfront to build out the necessary logistics and tech infrastructure. Only once a certain level of scale is reached can Carvana benefit with positive net income. 

Consequently, getting to sustainable profitability seems like a pipe dream given Carvana's current financial situation. The business posted a net loss of $1.4 billion in the most recent quarter (fourth-quarter 2022 ended Dec. 31), and the majority of that three-month period's gross profit went toward making interest payments. However, assuming the company survives near-term risks and gets back on its path of rapid growth, Carvana's bottom line could be well in the black in five years' time. 

Pushing the stock price higher 

What happens when a company mixes increasing market share with an expanding bottom line? Usually, this is the recipe for outsized stock returns. There is almost no doubt in my mind that if Carvana can execute on the two key goals that I laid out above, namely pushing sales up and achieving profitability, then the share price will be astronomically higher than it is right now. 

As of this writing, Carvana's stock trades at a ridiculously low price-to-sales multiple below 0.07. This is close to as cheap as it has ever been, demonstrating the sky-high pessimism that has been surrounding the business recently. Over the long term, fundamentals are what drive stock returns. And if Carvana can improve its situation, shareholders are in for a positive surprise five years from now.