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Valued at a market cap of $11.9 billion, CarMax, Inc. (KMX) operates as a retailer of used vehicles and related products. The Richmond, Virginia-based company offers customers a wide range of used cars, including domestic, imported, luxury, hybrid, and electric vehicles. Also, it provides vehicle financing alternatives to retail customers.
Companies worth more than $10 billion are generally described as “large-cap” stocks, and CarMax fits right into that category. The company distinguishes itself as the largest retailer of used vehicles in the U.S. and one of the nation's largest operators of wholesale vehicle auctions. It operates with more than 240 stores and is renowned for its integrity, transparency, and honesty in the car buying process.
Despite a 13.7% pullback from its 52-week high of $88.22 reached on Mar. 28, shares of this auto dealer have gained 6.6% over the past three months, surpassing the broader S&P 500 Index’s ($SPX) 4.2% return over the same time frame.
However, in the longer term, KMX stock has declined marginally on a YTD basis, lagging behind SPX’s 19.6% gains. Moreover, shares of KMX have dropped 6.5% over the past 52 weeks, significantly underperforming SPX’s 29.5% returns over the same time frame.
KMX has been trading above its 200-day moving average since early July and has remained below its 50-day moving average since early September.
CarMax has underperformed over the past year due to falling used vehicle sales and compressed gross margins, driven by the sharp decline in post-pandemic used vehicle prices and rising interest rates, which have impacted consumer demand and made auto financing more expensive. Additionally, economic pressures like inflation and increasing loan delinquencies have further constrained the company's profitability.
However, despite reporting a lower-than-expected Q1 net income of $0.97 per share and revenue of $7.1 billion, shares of CarMax rose marginally on Jun. 21 due to investor optimism about the company's strong gross profit margins and effective cost management strategies, which helped mitigate the impact of declining sales. Plus, its strategic stock repurchase program signaled confidence in long-term growth, which supported the stock's performance.
KMX has lagged behind its rival, AutoNation, Inc. (AN), which gained 13.1% over the past 52 weeks and 16.1% on a YTD basis.
Despite KMX’s underperformance over the past year, analysts remain moderately optimistic about its prospects. The stock has a consensus rating of “Moderate Buy” from the 16 analysts covering the stock, and the mean price target of $78.85 suggests a premium of only 3.6% to its current levels.
On the date of publication, Sohini Mondal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
