With nothing more than a passing glance, Carvana (CVNA +1.86%) looks like it's doing great. The company just reported its highest-ever quarterly revenue, as well as one of its strongest per-vehicle gross profits.
Things don't look like they'll be much different for the online-only used car dealer in the year ahead, either. Demand for used cars is holding up not just despite economic headwinds, but because of them. Kelley Blue Book reports that the average sales price of a new vehicle in the United States reached a record of $50,080 in September. That translates into average monthly payments of well over $700, according to Experian. Yet, with the average car in the U.S. now being nearly 13 years old (based on data from the Bureau of Transportation), many people have little choice but to purchase at least a slightly newer vehicle.
There are two things worth watching with Carvana, however, that could affect its stock price in 2026.
A couple of fiscal red flags
Based on nothing more than its touted numbers, it's easy to conclude that the company is firing on all cylinders. Carvana just posted record-breaking quarterly revenue on a record-breaking number of car sales, as was noted, turning a hefty gross profit of $7,362 on every vehicle it sold to retail customers during the three-month stretch ending in September. Of that, $3,456 came in reflected markup on the dealer's cost, while more than another $3,000 of the amount was proceeds from the sale of the loans it made to those car buyers.
NYSE: CVNA
Key Data Points
The company may be running into more of a cost headwind than it appears on the surface, though. Through the first nine months of fiscal 2025, operating cash flow has slipped to $606 million versus a year-ago comparison of $858 million. This is mostly due to inventory reductions and the growing losses it's taking on the sales of the automobile loans it's facilitating.
Separately but similarly, last quarter's adjusted EBITDA margin rate fell from 11.7% a year ago to 11.3% this time around. That's not a massive setback. However, since the company's per-car selling cost fell more than $300 year over year during the three months in question, something is clearly chipping away at its business. More scale typically results in wider profit margins.
Image source: Getty Images.
Perhaps Carvana's business model just isn't one that scales up cost-effectively. Or maybe it only works well when consumers aren't feeling as pinched as most of them are right now.
A different backdrop could cause different results
Maybe these deteriorating fiscal metrics are simply the result of a bit of bad luck that will soon run its course, putting the company back on its previous pace of profit growth. Certainly stranger things have happened.
Interested investors would still be wise to look at the coming year as a test of this organization's longevity. It's also possible that the unusual circumstances of the past three years (low interest rates, a limited supply of new cars, and a decent economy) are the chief reason this company was able to thrive like it did. Now that those circumstances have shifted, Carvana's recent success could be undermined as a result.
