What a time it’s been for Carvana. In the past six months alone, the company’s stock price has increased by a massive 87%, reaching $391.05 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is CVNA a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does Carvana Spark Debate?
Known for its glass tower car vending machines, Carvana (NYSE: CVNA) provides a convenient automotive shopping experience by offering an online platform for buying and selling used cars.
Two Things to Like:
1. Retail Units Sold Skyrocket, Fueling Growth Opportunities
As an online retailer, Carvana generates revenue growth by expanding its number of users and the average order size in dollars.
Over the last two years, Carvana’s retail units sold, a key performance metric for the company, increased by 23.3% annually to 143,280 in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction. 
2. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Carvana’s margin expanded by 22 percentage points over the last few years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Carvana’s free cash flow margin for the trailing 12 months was 3.8%.
One Reason to be Careful:
Customer Spending Decreases, Engagement Falling?
Average revenue per unit (ARPU) is a critical metric to track because it measures how much customers spend per order.
Carvana’s ARPU fell over the last two years, averaging 2.5% annual declines. This isn’t great, but the increase in retail units sold is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Carvana tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether units can continue growing at the current pace. 
Final Judgment
Carvana’s merits more than compensate for its flaws, and with the recent surge, the stock trades at 23× forward EV/EBITDA (or $391.05 per share). Is now the time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More Than Carvana
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