CVNA vs. AN: Which Auto Retail Stock Should Growth Investors Buy?

An analysis comparing Carvana (CVNA) and AutoNation (AN) favors Carvana for growth investors, citing its digital-first approach and strong sales growth, with a record $488M adjusted EBITDA and 11.5% margin. While Carvana carries significant debt, its long-term goal of 3 million units sold annually and a 13.5% EBITDA margin offer substantial upside; AutoNation faces challenges from tariff-related cost pressures and declining new vehicle margins, leading to lower EBITDA margins and a less attractive growth outlook despite share buybacks.

Analysis

Carvana (CVNA) is demonstrating significant operational momentum with its digital-first, used-car retail model, evidenced by a record $488 million adjusted EBITDA and an 11.5% adjusted EBITDA margin in its latest quarter, substantially outpacing industry norms. The company's retail unit sales surged nearly 46% year-over-year, and earnings per share more than doubled, supported by an 8% increase in gross profit per unit and successful operational efficiency improvements. Management's ambitious long-term targets include reaching 3 million annual unit sales and achieving 13.5% EBITDA margins, signaling strong confidence in scalability, though its $5.26 billion in long-term debt and a 0.75 debt-to-capital ratio present a key financial risk. In contrast, AutoNation (AN), with its diversified model including new and used vehicle sales and services, offers more stability and has been actively returning capital to shareholders through buybacks ($460 million in 2024, $254 million in early 2025). However, AutoNation faces considerable headwinds; its gross profit per new vehicle sold declined 15.8% recently, SG&A expenses have risen to approximately 67% of gross profit, and its EBITDA margins languish below 6%. AutoNation's significant exposure to new vehicle sales also makes it more vulnerable to tariff-related cost pressures. Reflecting these divergent outlooks, Carvana's stock has appreciated over 200% in the past year, trading at a forward sales multiple of 3.41, while AutoNation's stock gained 17% and trades at 0.26 times forward sales, with Carvana holding a Zacks Rank #1 (Strong Buy) versus AutoNation's #3 (Hold).

Key Decisions for Investors

• Growth-oriented investors may find Carvana's robust sales growth, expanding margins, and significant scalability compelling, but should carefully weigh these against its considerable financial leverage and premium valuation.
• Investors should diligently monitor Carvana's execution on its long-term unit sales and EBITDA margin targets, as well as its debt management, as these are critical factors for justifying its current market perception.
• For AutoNation, investors should balance its diversified business model and consistent capital return program against ongoing challenges such as contracting new vehicle margins, rising operational costs, and potential tariff impacts.