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Carvana CVNA shares are currently trading at a premium, as suggested by its Value Score of F. In terms of the forward 12-month price/sales, the stock is trading at 2.58X, higher than the auto sector’s 1.35X.
CVNA shares are significantly expensive in comparison to industry peers like CarMax KMX, Lithia Motors LAD and Sonic Automotive SAH, which are trading at a forward 12-month price/sales of 0.47X, 0.24X and 0.16X, respectively.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
The premium can be attributed to CVNA’s strong retail sales, strategic integration of ADESA’s infrastructure, enhanced operational efficiencies and cost optimization initiatives across logistics, reconditioning and technology.
However, is this premium valuation justified? Is it worthwhile for investors to buy CVNA shares? Let’s find out.
Strong Retail Sales are Driving Carvana’s Top-Line Growth
CVNA’s retail unit sales rose 50.3% in the fourth quarter of 2024 and totaled 114,379 units on strong demand. This momentum is expected to continue as Carvana, the second largest used car retailer in the country, holds a mere 1% share of the highly fragmented U.S. automotive retail market. So, there is still ample room for CVNA to expand its footprint, especially as more consumers gravitate toward online car buying.
The company expects a sequential increase in year-over-year growth of retail unit sales in the first quarter of 2025.
Strategic ADESA Acquisition Aids CVNA’s Prospects
Carvana’s acquisition of ADESA’s U.S. operations has strengthened the company’s logistics network, auction capabilities and reconditioning operations. By using ADESA’s existing infrastructure and resources, CVNA is scaling its refurbishment processes and improving the quality and quantity of vehicles prepared for sale.
The company has integrated Carvana IRC operations at 6 of 56 ADESA locations. CVNA’s capital expenditure budget for 2025 is approximately $140 million, with the increase from 2024 primarily driven by additional ADESA site integrations. Carvana expects to integrate 10-12 ADESA sites in 2025 with an average budget of around $2-$3 million of capex per site.
Improving Operational Efficiency Bodes Well for Carvana
CVNA’s focus on driving significant adjusted EBITDA per unit is further improving the company’s performance. The company is making efforts to enhance operational efficiency across the business, with several technology, process and product initiatives underway. Carvana reported an adjusted EBITDA margin of 10.1% in 2024, which is the most profitable year of any public automotive retailer.