Shares of Carvana (CVNA 1.21%) cratered in 2022, finishing last year down 98%. This continued a slide that started after the stock hit its all-time high in August 2021. 

But this year has been a wildly different story with shares up a whopping 762%. This means a $1,000 investment in the used car online retail business at the start of the year would be worth over $8,600 today. That crushes the gains posted by the S&P 500 and Nasdaq Composite.  

Investors are clearly warming up to the stock once again. Let's take a closer look at what's been happening with Carvana -- and whether that optimism makes sense.

Buying more time 

The most important news coming from Carvana recently was in mid-July, when the business announced a major debt restructuring. This move reduced the company's outstanding debt by $1.2 billion and eliminated $430 million of interest expenses in each of the next two years, made possible by extending debt maturities and putting up Carvana's assets as collateral. 

That can sound confusing, to be sure, but the business basically bought itself more time to get on stronger financial footing. This is absolutely essential. In 2022, Carvana paid $486 million in interest expenses, representing 39% of its gross profit, and it ended the year with a debt burden of nearly $7 billion, a huge amount. No wonder the stock was so cheap at the start of the year -- investors believed the company was on the verge of bankruptcy. 

The financial picture improved even more when the management team updated the guidance for the current quarter. Carvana now expects the business to register positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) above $75 million, up from a prior outlook of just "positive adjusted EBITDA." 

This is bolstered by a dramatic reduction in costs, exemplified by the improving bottom line. Carvana's net loss in second-quarter 2022 was $439 million, much higher than the $105 million net loss in the latest three-month period. 

These positive trends don't mask the fact that Carvana is still facing a notable slowdown. Units sold and revenue declined 35% and 24%, respectively, in Q2 on a year-over-year basis. The leadership team forecasts unit sales to be similar in the third quarter to what they were in Q2, which would indicate another sizable decrease from the year-ago period. 

Should you buy Carvana stock? 

Despite the company's slowdown, it's hard to deny Carvana's long-term potential. There is clearly a product-market fit, thanks to the business providing an exceptional customer experience that trumps how used cars have traditionally been sold. From a customer's perspective, buying a car from Carvana provides a much wider inventory selection, it's more convenient, and there is no need to haggle with a salesperson for hours at a brick-and-mortar dealership. 

Moreover, Carvana's opportunity is truly massive. The company's revenue in 2022 totaled $13.6 billion, and it sold 413,000 retail units. In 2021, there were about 41 million used cars sold with a value in the neighborhood of $1.2 trillion. This gives Carvana a microscopic share of the overall industry that it can further penetrate in the years ahead. 

And even after shares skyrocketed this year, they still trade at a price-to-sales ratio of just 0.36, which is significantly below their average valuation in the last five years. That's certainly a cheap entry point for investors who have been sitting on the sidelines. 

However, the superior customer experience, huge addressable market, and low valuation multiple can't cover up the fact that this is still an extremely risky stock to own. Investors should adopt a very cautious approach, thinking through and balancing Carvana's upside potential and downside scenarios, before making a decision on what to do with the shares.