CarMax Inc (KMX, Financial) experienced a daily loss of 2.98%, contrasting with a marginal 3-month gain of 0.99%. With an Earnings Per Share (EPS) of $3.03, investors are keen to understand if the stock is modestly undervalued. This article delves into the valuation analysis of CarMax, providing insights into whether the current market price reflects the company's intrinsic value.
Company Overview
CarMax Inc (KMX, Financial) operates as a prominent retailer in the used and new car market, boasting over 240 retail stores. Since its inception in 1993 and subsequent independence from Circuit City in 2002, CarMax has grown significantly. Despite the challenges, such as the recent chip shortage, the company has maintained a strong market presence, aiming for over 5% market share by 2025. With a current stock price of $69.28, CarMax presents a market cap of $10.90 billion. This positions the company in a state of modest undervaluation when compared to the GF Value of $78.27, suggesting potential for growth.
Understanding GF Value
The GF Value is an exclusive metric that estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance forecasts. The GF Value Line provides a benchmark for the fair trading value of the stock. If a stock's price significantly deviates from this line, it suggests overvaluation or undervaluation, potentially impacting future returns. In the case of CarMax (KMX, Financial), the current price suggests that the stock is modestly undervalued, implying a promising outlook for long-term returns.
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Financial Strength and Debt Position
Assessing the financial strength of a company is crucial before investing. CarMax's cash-to-debt ratio of 0.03 indicates a weaker financial position than many of its industry peers. With a financial strength rating of 4 out of 10, CarMax's debt situation warrants careful consideration by investors.
Profitability and Growth Prospects
Investing in profitable companies is generally less risky, and CarMax has shown consistent profitability over the past decade. With an annual revenue of $26.50 billion and an operating margin of -0.7%, the company's profitability is deemed fair with a rating of 7 out of 10. However, growth is an essential factor for valuation, and CarMax's 3-year average annual revenue growth of 13.4% suggests it is outperforming over half of its industry counterparts.
ROIC vs. WACC Analysis
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is a method to evaluate profitability and value creation. CarMax's ROIC of -0.55% against a WACC of 6.47% suggests the company may not be generating sufficient returns on its investments.
Conclusion
In conclusion, CarMax (KMX, Financial) appears modestly undervalued based on its GF Value, offering potential for long-term investors. Despite its fair profitability, the company's financial condition and growth prospects present a mixed picture, with some areas outperforming and others lagging behind industry averages. For a more detailed analysis of CarMax's financials, interested investors can explore the company's 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.
