To say that Carvana (CVNA -0.63%) was a Wall Street darling would be a gigantic understatement. From its initial public offering in April 2017 to its all-time high in August 2021, the stock skyrocketed an eye-watering 3,230%. Investors would struggle to find a return like this elsewhere in the market. 

The used-car e-commerce platform was growing like wildfire thanks to its disruptive potential in a massive industry. But macro headwinds have crushed the business and the stock. 

As of this writing, shares of Carvana are down 86% from their peak. To be clear, there are some notable risks to consider with this beaten-down stock. But it could still rise 10-fold. Let's take a closer look. 

Carvana has long-term potential 

It's easy to see that Carvana actually solves a need in the marketplace. The typical way used cars are sold in the U.S. is anything but a pleasant experience. People dread having to haggle back and forth with a salesperson who might have more information about a car than they do. The inventory selection on the lot can be limited. And customers can be at the dealership for several hours. 

People buy many things online these days, so it was only a matter of time before the e-commerce secular trend took over used automobiles. By using data, technology, and its massive physical footprint of inspection centers, Carvana found a way to provide a substantially better consumer experience to the used car industry. 

The growth has been nothing short of spectacular. In 2022, the company sold 413,000 cars, or more than nine times the 44,000 it sold just five years earlier in 2017. Unsurprisingly, revenue has soared as well. And before last year, Carvana was steadily approaching breakeven with profitability.  

Operating an e-commerce retail business model has its advantages over brick-and-mortar because there is no need to have a showroom, outlet, or store for customers to physically visit. This can help reduce costs. The issue for Carvana, however, is that it needs to achieve a much greater scale to see these benefits, and it could still be a long time until this happens. But the hope is that with a much larger number of units sold and higher revenue, the business will be better able to leverage its fixed costs and approach management's goal of EBITDA (earnings before interest, taxes, depreciation, and amortization) margins between 8% and 13.5% over the long term. 

Carvana's key risk must be understood 

Carvana is not without its risks, of course. The most obvious one is its troubling financial situation. The business had almost $7 billion of debt on its balance sheet as of March 31, and it only had $488 million of cash and cash equivalents. This is concerning, but it's even scarier for a company that hasn't ever turned an annual profit. Moreover, Carvana requires a huge amount of capital to grow. 

The business is dependent on a robust macroeconomic environment to succeed. Since its founding in 2012, Carvana hasn't had to deal with any meaningful economic downturn until now. After revenue growth decelerated slightly at the onset of the pandemic, Carvana saw its sales surge throughout 2021. But now, with higher interest rates hurting consumer demand for cars, and pushing up borrowing costs for Carvana, it's clear how much this company needs the economy on a solid footing for its success. 

During the first quarter of 2023, revenue dropped 25%. And management expects to sell fewer units in the second quarter than in the first. This rate of change is a world away from what the business was registering in prior years. 

But the leadership team is optimistic about its cost-cutting plans, now forecasting a positive adjusted EBITDA of $50 million for Q2. It's still anyone's guess, though, when the company can achieve positive net income. 

Carvana's stock currently trades at a ridiculously cheap price-to-sales multiple of 0.4, which is significantly below its historical average valuation. This is definitely a high-risk, high-reward investment. But if the company can successfully navigate the current economic environment, return to strong growth, and improve its financial situation, the stock has a chance -- albeit a small one -- to soar 10-fold over the next couple of decades.