Carvana's pullback 'offers a unique opportunity for investors'

Investing.com -- Carvana's recent share price decline presents a compelling buying opportunity, according to Morgan Stanley (NYSE:MS), which upgraded the stock to Overweight and raised its price target to $280 from $260 in a note Tuesday. 

The firm sees more than 30% upside, with its bull case of $400 a share representing a potential 90% upside.

The 25% pullback in Carvana (NYSE:CVNA) shares since their 2025 high of $285 was largely driven by broader market fears, including tariff concerns and geopolitical risks, rather than company-specific factors, said Morgan Stanley. 

However, the firm's recent inspection and reconditioning center (IRC) tour reinforced Carvana’s competitive advantages, particularly its vertical integration and scale.

“A sharp pull-back in the share price offers a unique opportunity for investors to gain exposure to a leader in auto retail and fleet fulfillment,” said the bank.

Carvana delivered four consecutive quarters of double-digit retail unit growth and industry-leading EBITDA margins, outperforming traditional auto retailers. 

Its ability to grow profitably while addressing leverage concerns differentiates it from past challenges, the firm noted. The company’s net debt-to-adjusted EBITDA ratio of 2.8x is now in line with franchise dealer peers like CarMax (NYSE:KMX).

Carvana’s used-car market share remains just 1%, but the company is reaching prior peak volumes from 2021/2022 with significantly improved efficiency, said Morgan Stanley. 

Used gross margins are double 2021 levels, and SG&A as a percentage of gross profit has dropped by more than half. Additionally, the ADESA acquisition provides further synergies, notes the bank.

While macro risks remain, including auto credit availability, Morgan Stanley believes Carvana’s business model and execution justify long-term confidence.

 With a 22% revenue CAGR through 2030 and 15% through 2040, Carvana is positioned as a "generational compounder". The risk-reward remains favorable, offering higher upside potential than downside risk, according to Morgan Stanley.