CarMax, Inc. (NYSE: KMX)
A used car retailer with headquarters in the US is called CarMax, Inc. CarMax Sales Operations and CarMax Auto Finance are its two operational business areas. Circuit City Stores, Inc. was the organisation in charge of creating CarMax. The first CarMax retail shop opened its doors in September 1993 in Richmond, Virginia. Having recently beat expections according to its last financial report, there has been an increase in mentions of CarMax by 284% over the last day, prompting investors to wonder what makes the company generate so much hype. Currently, shares of CarMax trade at $70 per share.
Positive Hype
There are numerous reasons why CarMax has gained such positive hype, here are some of them.
The car retailer's shares jumped 10% after it announced a beat on its earnings for the fourth quarter.
CarMax sold a total of about 1.4 million units in fiscal 2023, which it just wrapped up. Revenue for the period was $29.7 billion.
CarMax posted earnings of 44 cents per share, while analysts polled by Refinitiv had anticipated 24 cents per share.
CarMax has been firmly profitable for years -- and it only held $2 billion in long-term debt alongside its $315 million in cash and equivalents on its balance sheet at the end of fiscal 2023.
Further, the company reaffirmed its long-term vehicle unit sales and financial targets. Those targets are to sell between 2 million and 2.4 million vehicles annually by fiscal 2026 and generate between $33 billion and $45 billion annual revenue by the same year.
"We are confident that we are well positioned to continue leading the used car industry and to accelerate growth when the market improves," said CarMax CEO Bill Nash in the company's earnings release, reinforcing the company’s positive outlook.
CarMax's enterprise value of $28.3 billion values it at about 1 time this year's sales, but it isn't a screaming bargain at 25 times forward earnings.
Negative Hype
Despite its successes, there are still risks to buying shares of CarMax immediately. Here are two of them.
CarMax's fiscal fourth-quarter revenue fell 25.6% year over year to $5.7 billion as a surge in broader-market used car sales fades into the rearview mirror.
Analysts expect CarMax's revenue to decline 6% to $28 billion in fiscal 2024, and for its earnings per share (EPS) to drop 7%.
Conclusion
Despite being on the pricier end, CarMax is a relatively safer bet because it doesn't face the risk of a near-term bankruptcy, but it also won't attract more bulls until the macro headwinds dissipate and used car sales start rising again. It seems like the company is recovering from the slump in demand for used cars well and will continue to remain profitable in the future as well, especially given the management’s positive outlook.
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