Core Insights - U.S. auto retailers Carvana Inc. and Sonic Automotive are pursuing different business models, with Carvana focusing on a digital-first approach and Sonic combining traditional dealerships with online capabilities [1] Carvana Overview - Carvana is the second-largest used car retailer in the U.S. with a market share of only 1.5%, indicating significant growth potential in a fragmented market [2] - Retail units sold in Q2 2025 increased by 41%, with adjusted EBITDA rising 70% year over year to $601 million, and projected adjusted EBITDA for the full year is between $2 billion and $2.2 billion, up from $1.38 billion last year [3][6] - Efficiency improvements have been a key driver of Carvana's performance, including reduced costs through insourcing, staffing optimization, and the acquisition of ADESA's U.S. operations, which enhanced auction capabilities [4] - Despite a long-term debt of $5.3 billion and a debt-to-capital ratio of 0.72, Carvana's strong sales momentum and operational efficiency present a compelling investment case [5] Sonic Automotive Overview - Sonic Automotive operates a diverse network of dealerships selling both new and used vehicles, with high-margin parts, services, and finance/insurance divisions contributing nearly 75% of gross profit [7] - The EchoPark segment, focusing on used car sales, reported adjusted EBITDA of $27.6 million in 2024, with a record income of $11.7 million and a 128% year-over-year increase in adjusted EBITDA to $16.4 million [8] - Sonic's acquisition of four Jaguar and Land Rover dealerships is expected to add approximately $500 million in annual revenues, enhancing its luxury brand offerings [9] - The company has raised its dividend seven times in the past five years, with the latest increase of 9% to 38 cents per share, although it also faces balance sheet challenges with long-term debt of $1.47 billion [10] Comparative Analysis - Year-to-date, Carvana shares have increased by 78%, outperforming Sonic Automotive [11] - Carvana's forward sales multiple is 3.51, significantly above its five-year median of 1.95, while Sonic's forward sales multiple is 0.19 compared to its median of 0.14 [13] - Carvana's high valuations reflect strong growth expectations and improving profitability, while Sonic offers stability through diversified revenues [15] Conclusion - Carvana presents a high growth potential driven by digital adoption in car buying, despite its heavy debt load [16] - Sonic Automotive provides stability through diversified revenue streams and dealership scale, but also carries leverage risks [16] - Overall, Carvana is viewed as better positioned for growth due to strong unit growth and rising profitability, while Sonic offers balance and steady dividends [17]