Uncertainty surrounding tariffs has certainly thrown a wrench into the outlook for many businesses, but one industry that may experience a favorable tailwind from tariffs is used car sales. If tariffs drive up the price of new cars too much, more Americans may find they prefer to purchase a used vehicle. Let’s take a look at the three most prominent stocks trafficking in used cars: Carvana (CVNA), CarMax (KMX), and AutoNation (AN), and decide which is the best opportunity for investors going forward.
Performance Comparison between CVNA, KMX and AN stocks
Performance Comparison between CVNA, KMX and AN stocks
While Carvana is the upstart among this group as the newest of these companies, it’s also by far the largest in terms of market value, with a massive market cap of over $65 billion. Carvana has made a splash with its splashy marketing, like its “car vending machines,” and the convenience of having the company pick up or deliver a car right to your doorstep has won over many consumers.
Even with this impressive growth in the rearview mirror, CEO Ernie Garcia believes the company is just scratching the surface of its potential in this fragmented space. On the company’s first quarter earnings call, he explained: “There are 40 million used cars sold yearly in the U.S. There are an additional 16 million new cars sold yearly. Adding this up and using last quarter’s unit sales annualized, we are still just about 1% of this market. It’s very early in the Carvana story, and we are firmly on the path to becoming the way people buy and sell cars.”
There’s a lot to like about Carvana, but its steep valuation gives me some pause. The stock trades for about 63x 2025 earnings estimates, which means its valuation is roughly triple that of the S&P 500 (SPX), which currently trades for 21.4x earnings.
Carvana has been a significant growth stock, and I think it’s a compelling success story. However, my other concern beyond valuation is that much of the low-hanging fruit has been picked — let’s remember, this stock was trading for as low as $3.55 less than three years ago in December 2022, so it is nearly a 100-bagger since that time. More recently, Carvana has already been up 155% over the past year alone. The muted, limited upside by the average analyst price target illustrates this point.
Among professional analysts, CVNA earns a Moderate Buy consensus rating based on 11 Buy, five Hold, and zero Sell recommendations assigned in the past three months. The average analyst CVNA stock price target of $303.57 implies almost 4% upside potential over the coming twelve months.
With a market value of $10.4 billion, CarMax is much smaller than Carvana from a market value perspective, but the company is actually much larger than Carvana; in fact, it’s the largest used vehicle retailer in the U.S.. In 2024, the Richmond, Virginia-based company sold over 765,000 used cars via retail and sold another 546,331 via wholesale.
Carvana isn’t the only company in this space that believes it has a large runway for growth ahead of it. Despite this significant scale, CarMax believes it has plenty of growth ahead, as it believes it has captured 3.7% of the market share for zero-to-10-year-old used vehicles in the U.S. and is targeting 5% market share. CEO Bill Nash says he remains “confident in our ability to achieve further market share gains across 2025 and beyond.”
CarMax is not growing as fast as Carvana, but it is growing. Revenue is growing 6.7% year-over-year to $6 billion, and retail unit sales are growing by 6.2%. One positive about CarMax is that it is quite a bit cheaper than Carvana, trading at just 17.9x forward earnings estimates. This makes CarMax significantly cheaper than its competitor, and also a bit cheaper than the broader market.
KMX earns a Moderate Buy consensus rating based on 10 Buys, two Holds, and two Sell ratings assigned in the past three months. The average analyst KMX stock price target of $82.83 implies 30% upside potential from current levels.
Lastly, there’s AutoNation, the second-largest seller of used cars in the U.S. With a market cap of ~$7 billion, AutoNation is far smaller than Carvana and slightly smaller than CarMax from a market value perspective. Like CarMax, AutoNation isn’t growing as fast as Carvana, but it’s still growing, posting 4% revenue growth and $6.7 billion in sales during the most recent quarter.
One key difference between AutoNation and the two aforementioned companies is that it sells new vehicles. During the most recent quarter, AutoNation posted impressive 7% same-store new vehicle sales. However, this could be a potential headwind to monitor going forward, as tariffs could push used vehicle prices higher and crimp demand.
However, while acknowledging the challenges, CEO Mike Manley believes AutoNation is well-positioned to weather the storm thanks to its scale, explaining that AutoNation“will be cushioned by a cross-shopping effect,” whereby demand for lesser-impacted brands and models will supplant that for those more-affected counterparts. In this situation, we often hold both sides of the trade, not always equally weighted, but our broad portfolio of brands and models gives us an advantage here.”
Manley also pointed out that the company has inventory to hold over until there is more clarity surrounding tariffs, giving the company time to adjust accordingly.
AutoNation is the cheapest stock in this comparison, trading at a mere 10x 2025 earnings estimates. It is far more affordable than Carvana and CarMax and trades at just half the multiple of the broader market. While there are questions about the new vehicle market in the near term, it’s hard not to like a profitable stock that is growing revenue and trading for this rock-bottom multiple. Additionally, like CarMax, AutoNation is buying back stock and repurchased $225 million worth of shares during the first quarter of 2025.
AN earns a Moderate Buy consensus rating based on four Buys, three Holds, and zero Sell ratings assigned in the past three months. The average AN stock price target of $197.50 implies ~8.5% upside potential from current levels.
All three companies bring distinct strengths to the table. Carvana is a notable turnaround story that has captured significant investor attention and may still offer meaningful long-term growth potential. That said, with the stock currently trading at approximately 65x forward earnings estimates—versus 17.9x for CarMax and 10x for AutoNation—the valuation presents a challenge from a risk-adjusted return standpoint.
CarMax and AutoNation both stand out for their robust operational scale, steady revenue growth, and comparatively attractive valuations. Operating within a fragmented industry, each also benefits from opportunities to expand market share while returning value to shareholders through substantial share repurchase programs.
Of the two, I have a more favorable outlook on AutoNation, primarily due to its especially compelling valuation, which I believe already accounts for potential headwinds in the new vehicle market.
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