Unveiling CarMax (KMX)'s Value: Is It Really Priced Right? A Comprehensive Guide

An in-depth exploration into the true worth of CarMax Inc (KMX)

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CarMax Inc (KMX, Financial) experienced a 2.31% loss in its daily stock price, and a modest 1.28% gain over the last three months. The Earnings Per Share (EPS) stands at 2.91. The question that begs an answer is, is CarMax modestly undervalued? This article provides a valuation analysis that will help to answer this question. Read on to discover more.

Introducing CarMax Inc (KMX, Financial)

CarMax operates in the used and new car sales industry, offering financing and servicing options through its chain of approximately 240 retail stores. Established in 1993 as a unit of Circuit City, it became an independent company in late 2002. CarMax is the largest used-vehicle retailer in the U.S., with a market share of about 4% of vehicles aged 0-10 years in 2022. The company, based in Richmond, Virginia, aims to increase this share to over 5% by the end of 2025.


Understanding the GF Value of CarMax (KMX, Financial)

The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line indicates the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.

CarMax (KMX, Financial) stock appears to be modestly undervalued based on our GF Value calculation. At its current price of $80.51 per share, CarMax has a market cap of $12.70 billion, indicating that it may be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.


Financial Strength of CarMax

Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's essential to review a company's financial strength before investing. The cash-to-debt ratio and interest coverage are good indicators of financial strength. CarMax's cash-to-debt ratio is 0.01, ranking worse than 98.2% of 1225 companies in the Vehicles & Parts industry. The overall financial strength of CarMax is 3 out of 10, indicating that it is poor.


Profitability and Growth of CarMax

Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. CarMax has been profitable 10 over the past 10 years. The company had a revenue of $28.10 billion and Earnings Per Share (EPS) of $2.91 over the past twelve months. Its operating margin is -1.07%, ranking worse than 81.23% of 1252 companies in the Vehicles & Parts industry. Overall, the profitability of CarMax is ranked 8 out of 10, indicating strong profitability.

Growth is an essential factor in a company's valuation. The 3-year average annual revenue growth rate of CarMax is 15.1%, ranking better than 75.37% of 1202 companies in the Vehicles & Parts industry. However, the 3-year average EBITDA growth rate is -8.5%, ranking worse than 77.77% of 1075 companies in the same industry.


Comparing a company's return on invested capital and the weighted cost of capital is another way to assess its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the return on invested capital should be higher than the weighted cost of capital. For the past 12 months, CarMax's ROIC is -0.92, and its WACC is 5.65.



In summary, CarMax (KMX, Financial) stock appears to be modestly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks worse than 77.77% of 1075 companies in the Vehicles & Parts industry. To learn more about CarMax stock, you can check out its 30-Year Financials here.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure