Carvana Co - Class A

Carvana is disrupting a ~$1T used car industry in the US, fixing a broken experience and winning share in a fragmented market. We have scaled up our position in Carvana over the last 6 months as missteps in execution from 2H25 are now mostly remedied, leading to a re-acceleration in unit growth and recovery in profitability. We expect mid-to-high 30% unit growth for the next 3+ years, driving 1.5m units sold in '28 and ~$6b in EBITDA. If our analysis is correct, the stock is likely to double over the next two years as the market realizes the durability of Carvana’s higher growth for longer.

Carvana is positioned to grow its intrinsic value by 15% or more annually, driven by strong earnings growth. In the first half of 2026, Carvana grew its top line by 52%, indicating robust operational performance. The manager believes that the underlying assumptions for this growth are conservative, requiring only a continuation of existing trajectories. The valuation is considered attractive, as Carvana is in an out-of-favour sector despite its strong operational execution. This combination of growth potential and favorable valuation supports the bullish stance on Carvana.

Carvana is positioned to grow its intrinsic value by 15% or more per annum in the coming years. The company has demonstrated strong operational execution, with a top-line growth of 52% in the first half of 2026. This growth trajectory is expected to continue, making Carvana a compelling investment. The underlying assumptions for this growth are conservative, requiring only a continuation of existing trends without any significant changes in growth or profitability. The current valuation is attractive, especially given the temporary headwinds faced by the company.

Carvana continues to demonstrate impressive growth, with retail units sold increasing at a blistering ~40% year-over-year rate. Our visit to the Cleveland reconditioning center highlighted the strong leadership team and the significant efficiency opportunities still available, indicating that there is meaningful margin left to capture in operations. Despite the stock being down ~20% this year, it is trading at roughly 13x our estimate of 2027 EBITDA for a business growing organically at 40% y/y, which we view as a bargain. We have been adding to the position.

Carvana continues to defy skeptics by consistently surpassing execution expectations. Their unit economics are improving drastically, and they are successfully taking market share in a highly fragmented industry.

Carvana finished the year with another strong quarter. EBITDA came in modestly below our expectations, driven by elevated costs at a handful of reconditioning centers, but this does not change our view of the long-term earnings power of the business. Stepping back, the underlying momentum remains exceptional. Unit growth continues to exceed 35% year over year, while the company is delivering best-in-class profitability. Management expects the reconditioning cost pressures experienced in Q4 to be resolved by Q2 2026. With less than 2% share of the U.S. used car market, Carvana’s growth runway remains measured in decades, not years.

Carvana is currently trading at attractive valuations of 20x 2026 EBITDA and <15x 2027 EBITDA while growing nearly 40% year-over-year, which is particularly impressive given the challenging external conditions. The used car industry is generally stable, with a consistent market size of ~40 million units, implying stable ownership periods for the auto fleet. Despite perceptions of high cyclicality, the actual decline in the used car market was only ~10% in 2022, indicating resilience. This stability and growth potential make Carvana a compelling investment, and I am more inclined to buy than to sell at these valuations.

Carvana’s strong financial trajectory continues reporting record third-quarter results, with 155,941 retail cars sold (+~44% YoY) and total revenue of ~$5.65 billion (+~55% YoY), both all-time quarterly highs. The company generated adjusted EBITDA of ~$637 million +~50%, with an adjusted EBITDA margin of ~11.3%, well above typical industry profitability levels. This performance underscores our belief in Carvana's potential for significant long-term growth, as the market continues to undervalue its earnings and cash flow generation capabilities.

Carvana continues to deliver strong performance, posting record highs across nearly every key financial metric. Retail units sold rose 41% year over year to 143,280 vehicles — the highest in company history — while total revenue increased 42% to $4.84 billion. Adjusted EBITDA reached $601 million, good for a 12.4% margin, more than 2x industry average profitability. Even after its strong growth, Carvana estimates its U.S. market share is still only about 1.5%, underscoring a large runway for expansion. Overall, recent results continued to demonstrate the structural advantages of Carvana’s business model which enable rapid growth in profitability.

Carvana remains our largest position by far, and I continue to be amazed by the company’s execution – especially in contrast to others in the industry. Carvana is posting >45% y/y growth in the September quarter, exiting the quarter above +50% unit growth. If the industry is suffering from headwinds, Carvana does not appear to be feeling them. The company is adding variable roles in reconditioning and local delivery at a blistering pace, with openings for such roles up 60% over the last 6 months. It’s rare to find companies with such a powerful customer response and I expect to see continued disruptive growth for many years to come.