Carvana Stock Rally: From Bankruptcy Brink to $100B Valuation

The Dramatic Three-Year Recovery

Carvana (NYSE: CVNA) has engineered one of the market’s most striking turnarounds for long-term investors. After trading as low as $3.72 in late December 2022—when bankruptcy fears gripped the market—the stock has surged approximately 8,420% over the past three years. This resurgence stands in sharp contrast to the modest 79% five-year return, which trails the S&P 500’s 101% performance over the same period. Over the most recent 12 months, shares have advanced 80%, substantially outpacing broader market gains.

Why the Near-Death Experience?

The 2022 crisis stemmed from multiple converging pressures. Rising interest rates combined with inflationary headwinds severely dampened consumer spending on discretionary purchases like used vehicles. Meanwhile, Carvana’s ambitious $2.2 billion acquisition of ADESA added significant debt burden just as credit markets tightened. Long-term debt peaked at $7.5 billion that year, leaving the company’s balance sheet severely stressed.

Management’s response proved decisive. The company implemented rigorous cost rationalization initiatives and pursued aggressive debt refinancing. These operational improvements aligned with broader market recovery, setting the stage for the comeback investors witnessed today.

The Fundamental Turnaround Taking Shape

Recent financial results validate the turnaround narrative. In Q3 (ended September 30), unit volume jumped 44% year-over-year while revenue climbed 55%—figures that demonstrate the company is capturing market share while improving operational efficiency. Perhaps most critically, Carvana has returned to GAAP profitability, a milestone that seemed distant during the darkest 2022 moments.

The balance sheet has strengthened meaningfully. Long-term debt now totals $5.5 billion, representing a $2 billion reduction from peak levels. This deleveraging trajectory, combined with consistent earnings generation, provides a much firmer financial foundation than observers feared just three years ago.

Valuation Now Presents a Different Challenge

The very forces that created opportunity have now priced much of that upside into the stock. Carvana’s current valuation has become notably expensive on a price-to-sales basis, trading at a 3.5x multiple. This valuation sits near the stock’s historical peak, achieved during the 2021 bull market euphoria—a period many investors recall as a cautionary tale about stretched valuations.

The domestic used car market itself remains expansive, supporting roughly 36 million annual transactions. This scale presents genuine long-term runway for an operator like Carvana as it builds distribution, expands market penetration, and operates with improving unit economics.

The Current Investment Dilemma

Investors evaluating Carvana today face a classic decision: entering at stretched valuations with established momentum, or waiting for a potential pullback to establish positions at better risk-reward parameters.

The company has undoubtedly proven operational capability and business model viability. The fundamental case for disruption in used car retail remains intact. However, the stock price now reflects considerable optimism about future performance—perhaps more than what’s prudent to pay at current levels.

For those considering investing in stocks 101 principles, this situation exemplifies how even strong business turnarounds can eventually reach valuations where patience becomes preferable to enthusiasm. A measured approach acknowledging both the company’s operational improvements and the premium valuation seems most defensible for new capital allocation decisions.