It's been a tough past few weeks for Carvana (CVNA 5.41%) shareholders. Down another 10% just since last Wednesday evening's release of its fiscal fourth-quarter numbers, this stock's now fallen more than 30% from its late-January peak. It looks like it's still sinking, too.
Once the dust is done settling, though, this weakness is likely to end up being more of an opportunity than an omen -- and not an opportunity that will take long to pay off.
Image source: Getty Images.
A disappointing quarter made worse by unclear guidance
Investors' worries are legitimate. The used car dealer's often-touted gross profit per retail unit fell from $6,916 in the fourth quarter of 2024 to only $6,562 in last year's Q4. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $511 million also came up short of analysts' expectations.
Perhaps most alarming of all is that the company didn't offer any specifics as to expectations for the year ahead. The company simply said, "Looking forward, Carvana expects significant growth in both retail units sold and adjusted EBITDA in full-year 2026, including a sequential increase in both retail units sold and adjusted EBITDA in Q1 2026, assuming the environment remains stable."
NYSE: CVNA
Key Data Points
Too many investors have become so focused on last quarter's shortcomings and the lack of clarity regarding the year ahead, however, that they're missing the much bigger bullish picture.
Primed for continued growth
There's a powerful undertow impacting the automobile market at this time. While Standard & Poor's reports a respectable 16.3 million new cars were sold in the United States last year, that's only about 2% better than 2024's tally.
Cox Automotive reported the average new car sold in the United States in January sold at a still-high average price of $49,191. Affordability remains a major headwind. That's one of the chief reasons Cox expects 2026's domestic sales of new cars to slip to 15.8 million units.
The need for reliable vehicles isn't simply going away, though. Indeed, data from the Bureau of Transportation Statistics indicates that as of the end of last year, the average automobile being driven on U.S. roads is now a record-breaking 12.8 years old. Many of them are at or past the point where it costs more to keep them running than to replace them. To this end, while Cox expects a very slight headwind for the used car business this year as well, higher prices should offset at least some of this weakness.
As big as Carvana has become, even with last year's sales growing to 596,641 retail units and 297,643 wholesale cars, the used car dealer still only controls a little more than 2% of the nation's used car market. Sheer market penetration will provide growth even if per-unit profitability remains stagnant.
Growth is still growth
Carvana's Q4 revenue was up 58% year over year on a 43% increase in retail units sold, extending and accelerating trends underway earlier in 2025. Analysts expect more of the same at least through 2027.
Even if the used car dealer chain's profit margins are under a bit of pressure at this time, once investors are reminded of this raw growth firepower sooner rather than later this year, don't be surprised to see the stock start recovering from its recent swoon.
