CarMax Inc (KMX, Financial) has experienced a daily loss of 2.58% and a marginal 3-month gain of -0.14%, with an Earnings Per Share (EPS) standing at $2.87. Investors are keenly observing these metrics to determine if the stock is modestly undervalued. The following analysis delves into CarMax's valuation, providing an insightful look at whether its current market price reflects its true worth.
Company Introduction
CarMax Inc (KMX, Financial), with its robust presence in the automotive sector, operates approximately 240 retail stores, offering a mix of used and new cars. Founded in 1993 and having spun off from Circuit City in 2002, CarMax has grown to become the largest used-vehicle retailer in the U.S. Despite its significant market presence, CarMax estimates a modest 4% market share of 0-10-year-old vehicles in 2022, aiming to surpass 5% by 2025. With a current stock price of $76.52 and a market cap of $12.10 billion, we compare this against the GF Value, which suggests a fair value estimation of $88.84, indicating that CarMax may be modestly undervalued.
Summarize GF Value
The GF Value is an exclusive metric that reflects the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and future business performance predictions. CarMax's GF Value suggests the stock is modestly undervalued, with its price lingering below the GF Value Line. This discrepancy suggests a potential for higher future returns, as the stock price may adjust to align with its fair value.
Given CarMax's current valuation, investors could anticipate higher long-term returns, which could outpace the company's business growth.
Link: These companies may deliver higher future returns at reduced risk.Financial Strength
Assessing the financial strength of a company is crucial to avoid the risk of permanent capital loss. CarMax's cash-to-debt ratio of 0.03 places it lower than 95.2% of its peers in the industry, signaling a weaker financial position. The company's overall financial strength is rated 4 out of 10, which raises concerns about its ability to sustain financial pressures.
Profitability and Growth
CarMax has maintained profitability over the past decade, with the last year's revenue reaching $27 billion and an Earnings Per Share (EPS) of $2.87. However, the operating margin stands at -1.03%, which is lower than 82.02% of competitors in the Vehicles & Parts industry. Despite this, CarMax's profitability is considered strong overall.
The company's growth trajectory is also a key factor in valuation. CarMax's 3-year average annual revenue growth of 15.1% is commendable, outperforming 74.71% of its industry peers. Yet, its EBITDA growth rate over the same period is -8.5%, which lags behind 78.12% of the industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) helps gauge profitability efficiency. CarMax's ROIC of -0.85 versus its WACC of 5.84 suggests that it is currently not generating sufficient returns on its investments, which is a concern for value creation.
Conclusion
In summary, CarMax (KMX, Financial) appears to be modestly undervalued based on the GF Value. While the company demonstrates strong profitability, its financial strength is weak, and its growth rate is below average within the industry. For a detailed review of CarMax's financial health, investors can explore the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
