Carvana's Q2 FY26 Results Show Strong Growth but Valuation Remains Stretched

What happened

Carvana reported fiscal Q2 2026 results that marked its tenth consecutive quarter of record profitability and revenue, with retail units up 38% and revenue up 52% year over year. Management attributed the growth constraint to inventory and reconditioning capacity rather than demand, and is aggressively expanding capacity to remove that bottleneck. Profitability improved on higher volumes and cost discipline, driving record gross profit even as gross profit per unit declined. The results address key volume and profitability concerns from our earlier report but do not provide detail on the durability of 'other sales and revenues' or loan-sale gains, which remain critical swing factors. The stock appears to be pricing in continued strong execution, but the risk of credit spread widening and elevated delinquency rates persists.

Implication

Investors should treat the Q2 FY26 results as confirmation that demand and unit economics are holding up better than our base case, increasing the probability that the company sustains 150k+ quarterly retail units. However, the press release and article do not break out the contribution from loan-sale gains and product commissions, which we flagged as a high-margin lever that could reverse if consumer credit deteriorates. With the stock likely trading well above our $280 attractive entry level and possibly above $420 trim threshold, new money carries limited margin of safety. We would want to see either a pullback toward $300 or evidence that 'other' revenue per unit is stable before adding exposure. Until then, the risk/reward is not compelling enough to upgrade from Wait, but the bear case has weakened given the demonstrated operational strength.

Thesis delta

The strong Q2 FY26 results incrementally validate the bull case by demonstrating sustained volume growth and profitability despite capacity constraints, which reduces the probability of our bear scenario. However, the update does not resolve the key uncertainty around the durability of 'other sales and revenues' and loan-sale gains in a potentially weakening credit environment. We maintain a Wait rating but lower our bear case probability from 25% to 20% and raise our base case probability from 50% to 55%.