CarMax (KMX) shares have drawn attention as the stock continues its downward slide, recently closing at $41.34. Investors are weighing the company’s recent financial performance, including a modest annual net income growth, in relation to broader trends in the used car market.
CarMax’s share price has tumbled in recent months, with a 90-day return of -26.31% and a year-to-date drop of nearly 50%. This sustained downward momentum puts the one-year total shareholder return at -43.42%, highlighting continued investor caution amid uncertainty in the used car market and concerns around longer-term growth potential.
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With shares trading well below analyst price targets and profit growth remaining positive, investors face a key question: is CarMax undervalued at these levels, or is the market already factoring in everything about its future growth prospects?
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Most Popular Narrative: 25% Undervalued
According to the most widely followed narrative, CarMax appears significantly discounted relative to its stated fair value, with the latest close well below the consensus target. Market participants are closely eyeing management’s digital and financial expansion moves as core drivers behind future upside.
The ongoing enhancements to their digital tools are expected to further integrate online and in-store sales. Expansion in the company's vehicle sourcing capabilities, particularly through dealer channels and improved consumer experience, is intended to support unit volume growth and improve gross profit margins by lowering vehicle acquisition costs.
Want to unravel the logic behind this discounted valuation? The heart of this forecast is bold assumptions about CarMax’s future margins, revenue mix, and profitability pace. Which specific growth levers and margin projections are turning skepticism into opportunity? Unlock the data driving this bullish valuation narrative.
However, ongoing declines in wholesale gross profit and competitive pressures in vehicle sourcing could quickly undermine confidence in CarMax’s recovery outlook.
Looking through the lens of the current price-to-earnings ratio, CarMax trades at 11.7x, which is below the US market average of 18.2x and the US Specialty Retail industry standard of 16.7x. The estimated fair ratio sits at 18.4x. This discount could suggest an overlooked value opportunity, but it may also reflect lingering doubts over long-term prospects. Is the market being too cautious, or is there further risk ahead?
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CarMax for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 843 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Build Your Own CarMax Narrative
If you see the story differently or want to dig into the numbers on your terms, you can quickly build your own perspective and apply your unique insights. Do it your way.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.
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