Up 4,300%, but the Biggest Reason to Buy Carvana Was Heavily Overlooked

By Daniel Miller – Mar 18, 2026 at 2:15PM ESTKey PointsCarvana has posted strong financial results recently, but was boosted during the fourth quarter.Releasing its valuation allowance did a number of things, including positively impacting net income.However, needing to release its valuation says something about Carvana's future: It's more profitable and stable.There are a number of reasons investors might want to buy into used-car retailer Carvana (CVNA 5.53%). One is simply momentum over the past three years, where the stock price has soared 4,300% compared to the S&P 500's 70% gain. Perhaps investors are buying into its more profitable, stable, and healthy growth, rather than growth at all costs from its early years. Savvy investors perhaps saw something many overlooked during Carvana's fourth quarter that could be the biggest buy signal yet. Image source: Carvana. What is "valuation allowance"? During Carvana's fourth quarter, the company posted a record net income for the full year of $1.895 billion. Savvy investors also noticed the note that reads, "Net income in FY 2025 was positively impacted by ~$685 million associated with the release of our valuation allowance against our deferred tax assets and recording of the full tax receivable agreement liability." There's a lot to unpack in that one sentence, but let's start with deferred tax assets (DTAs). When a company loses money for an extended period of time, it accumulates DTAs that can reduce future tax obligations. Now, to have tax obligations means you have to have profits, but in the scenario that companies believe there is a greater than 50% chance it will never have the profits to claim these DTAs against, the company is required to set up a "valuation allowance." Essentially, Carvana's past losses have accumulated DTAs that, in the past, management didn't believe they would be profitable enough to use. This has changed. Because Carvana is now comfortably profitable, and management now sees it as more likely that the company will need to use those DTAs to offset actual income tax obligations, it must release the valuation allowance. When the valuation allowance is released, it's recorded as a deferred income tax benefit, which immediately increases net income -- the significant benefit of $685 million savvy investors picked up on. While most of this is simply changes on paper and the $685 million benefit is a noncash gain, it is (over time) cash flow positive, as actually using these tax assets will require the company to pay less cash on taxable income in the future. ExpandNYSE: CVNACarvanaToday's Change(-5.53%) $-17.41Current Price$297.33Key Data PointsMarket Cap$45BDay's Range$294.67 - $314.4152wk Range$148.25 - $486.89Volume72KAvg Vol4.3MGross Margin19.80% Don't bury the lead That entire explanation of Carvana's DTAs and release of its valuation allowance is simply to say that management officially, after complying with rules and regulations that require evidence, believes the company will be easily profitable enough to use these tax assets going forward. Essentially, it signals the end of a bittersweet era for the company that only three years ago was on the brink of bankruptcy. But this forced the company to focus on reversing losses and doubling down on profitable growth, rather than growth at all costs. Carvana has bounced back -- if turning a $10,000 investment into more than $430,000 over the past three years wasn't enough of a clue -- and its business is here to stay and is currently thriving. That should continue for investors.Read NextFeb 25, 2026 •By James BrumleyCarvana Shares are Down Another 10% Just Since Sharing Its 4th-Quarter Results. Can the Used Car Dealer Bounce Back in 2026?Feb 15, 2026 •By Micah ZimmermanShould You Buy Carvana Stock Before Feb. 18?Jan 12, 2026 •By Daniel Sparks2026 Just Started and Carvana Stock Is Already Up Sharply.

Can It Keep Soaring?Dec 29, 2025 •By Daniel SparksCarvana Stock More Than Doubled in 2025.

Can It Keep Soaring In 2026?Dec 18, 2025 •By Neil PatelWhat Has Carvana (CVNA) Stock Done for Investors?Dec 9, 2025 •By James BrumleyWhat to Watch With CVNA Stock in 2026About the AuthorDaniel Miller is a contributing Motley Fool stock market analyst covering industrials and consumer goods, with a focus on automotive companies. He previously worked as a product manager in the automotive aftermarket industry. Miller holds a bachelor’s degree in business management from Emporia State University.TMFTwoCoinsStocks MentionedCarvanaNYSE: CVNA$297.16(-5.59%)-$17.58*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.