Ruane Cunniff Comments on Carmax

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Jul 13, 2016

Carmax (NYSE:KMX) has turned the once-notorious used car business on its head with no-haggle pricing on products that have been rigorously reconditioned and certified. The biggest used car dealer in the country and the only one with a national brand, Carmax has the opportunity to roughly double its store count while increasing same-store sales in the years ahead. We have followed Carmax for more than a decade and we particularly like the fact that others have tried to copy its business model without success. The shares were weak during the quarter due to concerns that a slowing auto cycle could depress used car prices, as well as the emergence of some new competitors on the internet. However, we think Carmax has a terrific opportunity to capitalize on Internet selling. We bought Carmax shares at a reasonable 15x P/E multiple because we believe whatever the short-term fluctuations in used car pricing, the company’s consumer appeal is quite strong.

From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund second quarter 2016 shareholder letter.