Carvana (CVNA 4.47%) has been a polarizing stock in the past. It went from winning over investors in remarkable fashion to seeing its share price nosedive to now trending back in the right direction. This growth tech stock is up a jaw-dropping 2,000% in just the past two years (as of April 11).

However, it still trades 45% below its peak, a milestone that was reached in August 2021. If you have $500 to invest, should you be buying shares of Carvana right now? It's worth diving deeper into the top bull and bear arguments to decide.

Disrupting a massive industry

It's not surprising to hear that consumers might not be fans of the typical car-buying process. It takes a lot of time, there's uncomfortable haggling that happens with a salesperson, inventory on the lot is limited, and pricing might not be transparent.

Carvana was created to solve this pain point, providing a superior shopping experience. It operates an online retailing model, leaning heavily on technology and digital capabilities. Building out a massive inventory pool of 55,000 cars, as well as a nationwide network of reconditioning centers and logistics facilities, helps to better serve customers.

History says there is tremendous growth potential. Carvana's revenue skyrocketed 326-fold between 2014 and 2024, supported by a massive upswing in the number of used vehicles it sells. That astronomical growth is hard to comprehend, but the platform is clearly resonating strongly with consumers.

There is a meaningful opportunity ahead. Carvana sold 416,000 cars in 2024, which gives it an estimated 1.2% market share in the U.S. This is an extremely tiny slice of the overall pie, and it highlights just how fragmented the industry is. As Carvana further penetrates key markets, gains brand awareness, and expands its inventory, it is in a position to increase market share.

Investors will be pleased with Carvana's improving income statement. The company reported an operating profit of $990 million in 2024, a record. Credit can be attributed to stronger unit economics. Carvana generated an impressive $6,908 of average gross profit on each vehicle sold last year, partly driven by lower transport costs and a more favorable credit funding backdrop.

There are still notable risks

Carvana's stock performance showcases incredible optimism from the investing community. But don't let that distract you from what are still some very notable risk factors.

Long-time followers of the business are all too familiar with the fact that Carvana has had financial troubles. It was on the verge of bankruptcy at one point, but management was able to restructure debt in 2023 that extended maturities and lowered interest payments to give the company much-needed breathing room.

While things have improved somewhat, Carvana is still highly levered. As of Dec. 31, it carried $5.6 billion of long-term debt on the balance sheet, compared to just $1.7 billion in cash and cash equivalents. Additionally, the company spent $651 million on interest expense last year, amounting to 66% of its entire operating income. This unfavorable situation continues to introduce a reason to worry, as any revenue downturn can once again lead to financial stress.

Carvana is exposed to numerous factors that are totally outside of its control. One area to consider is used car prices, which are influenced by supply and demand changes. Macro forces, particularly interest rates and consumer confidence, can also provide either a boost or a major headwind to Carvana's success. Because these variables are unpredictable, they add uncertainty to the mix.

Even though they're off their peak, shares still look expensive. As of this writing, Carvana trades at a price-to-sales ratio of 2.3, almost double the historical average. I view the bear case as more compelling, so I don't believe Carvana is a smart buy today.