Can Carvana Stock Fall 40%

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Carvana (CVNA) stock has fallen 40% or more within a calendar year in seven of the last nine years. A drop of that size would not be unusual. The immediate concern is its gross margin, the share of revenue remaining after the cost of the cars sold. That metric slipped to 18.9% in fiscal Q3 2026 from 20.3% a year earlier. Carvana is selling more cars but keeping less money from each transaction. What is pulling Carvana's gross margin down?

Carvana Chose To Charge Customers Lower Loan Rates

The biggest drop was in what Carvana earns per car beyond the vehicle sale, a line that moves with the rates it charges on customer loans. Management said that profit fell $299 per car from a year earlier on its non-GAAP measure, mainly because Carvana chose to charge customers lower interest rates relative to benchmark rates, and because benchmark rates rose during the quarter. Carvana made that choice in late 2025, when it passed some of its earlier gains back to customers.

Wholesale gross profit per retail car sold also fell, by $196, because retail units sold grew faster than wholesale gross profit, management said. Profit on the retail car itself went the other way, rising $85 per car on wider spreads between retail and wholesale prices. So a large part of the lower margin comes from Carvana's own choice on loan rates, along with benchmark rates it does not set. Management also said its adjusted EBITDA margin fell partly because Carvana sold a mix of higher-priced cars.

Is Carvana's Margin Still Slipping?

The margin did not slip from the quarter before. Carvana's gross margin in fiscal Q2 2026 was 18.8%, about the same as in the third quarter. Management said its loan-related profit per car barely moved from the second quarter even as benchmark rates kept rising. They noted this was partly because the company had started passing those rates on to customers.

Over twelve months, though, the margin is lower. Gross margin was 19.0% in the four quarters to September 2026, down from 21.4% a year earlier. Operating margin fell too, dropping to 8.9% in fiscal Q3 2026 from 9.8% a year earlier. Management has set a goal of a 12.5% operating income margin and said the savings it sees across its major expense categories are enough to get there.

Carvana still keeps more of each sale than its large rivals. Its twelve-month gross margin sits above those of five large competitors, with the closest being AutoNation at 17.7%.

How Far Has Carvana Stock Fallen In Past Sell-Offs?

The stock has fallen much further than the S&P 500 in most past sell-offs. In the 2022 inflation shock, Carvana stock fell 94.0% while the SPY fund, which tracks the S&P 500, fell 24.0%. In the 2025 tariff shock, it fell 42.0%, against 19.0% for the fund. In the 2023 bond yield shock, it fell 41.0%, against 9.5%.The one exception came in the summer 2024 sell-off, when Carvana fell less than the index. Carvana trades at 41.3 times its cash from operations, against 14.9 for the S&P 500.

A holder should treat the lower margin as a moderate worry rather than a reason for alarm. Much of the decline came from a choice Carvana made on loan rates, and the margin has held level for two quarters. For the risk to be worth taking, Carvana needs to keep its margin from slipping further while passing higher rates on to customers. Its gross margin against a year earlier is the number to watch when the company reports its fourth quarter, expected in February 2027.

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