Carvana (CVNA 2.74%) has been one of the market's biggest winners in 2025, with shares more than doubling year to date. A company that once appeared to be a risky leverage story is now posting record volumes and substantial profits.
But Carvana's improving business fundamentals don't automatically make the stock a buy today. The business, which operates a leading e-commerce platform for buying and selling used cars, is far stronger than it was a year or two ago. But have expectations outpaced the underlying business?
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Momentum has improved
Carvana's third-quarter update shows why investors have rewarded the growth stock stock this year. Retail cars sold rose 44% year over year to 155,941. This marked an acceleration from Q2, when retail units jumped 41% year over year.
Even more, Carvana's revenue growth is outpacing unit growth. Third-quarter revenue rose 55% year over year to about $5.65 billion.
Showing how far the company has come in terms of profitability, Carvana reported net income of $263 million during the period, giving the company a net income margin of 4.7%. Operating income was $552 million, and earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $637 million -- $208 million more than in the year-ago period.
It's also worth noting that the company has maintained a high gross profit per retail unit even as sales have soared, showing that management is expanding the business in a disciplined fashion. Gross profit per retail unit was $7,362 in the fourth quarter of 2025, down only $65 compared to the year-ago period.
"We continue to focus on unlocking the structural advantages of our vertically integrated model that strengthen our business and separate our customer offering," said Carvana founder and CEO Ernie Garcia in the company's third-quarter earnings release. "This effort has already driven new milestones in speed, selection, convenience, and efficiency and we are even more excited about what's possible on the road ahead."
Importantly, Carvana noted in the company's third-quarter shareholder letter that its sales are still small in relation to its opportunity. Specifically, management said Carvana currently captures only "about 1.5% of the U.S used car market and 1% of the total U.S. car market."
Looking ahead, Carvana forecast fourth-quarter retail unit sales to be above 150,000, and management said it expects full-year 2025 adjusted EBITDA at or above the high end of its prior guidance range of $2.0 billion to $2.2 billion.
NYSE: CVNA
Key Data Points
High expectations
The hard part for investors, however, is distinguishing between an excellent business and an excellent stock.
It's difficult to make a case that the stock's underlying fundamentals justify the stock's valuation today. At the time of this writing, shares trade at a price-to-earnings ratio of 99 and a forward price-to-earnings of 65.
Of course, the possibility of Carvana growing into its valuation shouldn't be ruled out. After all, it is also spending to stay ahead of growth. Management said it expects to end 2025 with a fully built-out annual retail production capacity of over 1.5 million units across Carvana and integrated ADESA (Carvana's wholesale auto auction business) production locations -- 2.5 times its current retail unit sales volume. It also said it expects to keep integrating ADESA locations in 2026 at a similar pace as 2025, while beginning construction on full build-outs at select ADESA sites.
So, can Carvana stock keep soaring in 2026? Of course. But it could also fall sharply if sales growth fails to meet the high expectations priced into the stock after its huge run-up. The better question is whether shares are undervalued, fairly valued, or overvalued. Overall, I think shares look a little overvalued, despite the underlying business momentum and management's expansion efforts. So, I'll personally be staying on the sidelines.
