Carvana Co. (CVNA) just pulled off something remarkable: joining the S&P 500 while simultaneously becoming one of the market's most overvalued stocks. It's the corporate equivalent of getting promoted while your performance review tanks.

When Price and Value Part Ways

The online used car dealer has seen its shares rocket 24.04% over the past month, fueled by excitement over potential Federal Reserve interest rate cuts and its Friday addition to the S&P 500. But here's the uncomfortable truth lurking beneath the celebration: the company's valuation metrics are flashing red.

Carvana's value score tumbled from 11.36 to just 9.67 in a single week. That number matters because it's a percentile-ranked composite measuring how the stock's market price stacks up against fundamental metrics like assets, earnings, and sales. At 9.67, Carvana is now pricier than over 90% of the market relative to what it actually owns and earns.

Think of it this way: as the stock price climbs without the company's underlying fundamentals keeping pace, you're paying more and more for the same business. That widening gap is precisely what pushes a stock into overvalued territory.

The contrast is striking. While Carvana's value score sits in the basement, its growth score hits 99.15, the highest among its key metrics. The company shows strong price momentum across short, medium, and long-term horizons. It's growing fast, sure, but investors are paying a premium that might make even optimists squirm.

The Rate Cut Story

So why are investors piling in? Two words: rate cuts. The CME Group's FedWatch tool shows an 87.2% probability that the Federal Reserve will slash interest rates at its upcoming policy meeting. For Carvana specifically, lower rates are particularly helpful. They reduce the cost of holding massive amounts of vehicle inventory and make monthly car payments cheaper for consumers, potentially driving demand higher.

It's a compelling narrative, and markets love a good story. Add in Friday's S&P 500 inclusion, which brings automatic buying from index funds, and you've got a recipe for momentum.

The numbers tell a remarkable recovery story. Carvana closed Friday at $399.77, up a modest 0.23% on the day, then surged another 9.04% in Monday premarket trading. Remember that this is a stock that hit $3.72 in late 2022. The company has gained 100.33% year-to-date and 63.82% over the past year.

But here's the tension: impressive returns don't always equal good value. Carvana's admission to the S&P 500 is a legitimate milestone that validates its survival and growth. Yet the valuation metrics suggest the market may be pricing in perfection, leaving little room for disappointment if those rate cuts don't materialize as expected or if the business hits operational bumps.

For value-focused investors, the message is clear: this rally has pushed Carvana well beyond what its current fundamentals can comfortably support.