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Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. That’s what has happened with the CarMax, Inc. (NYSE:KMX) share price. It’s up 31% over three years, but that is below the market return. Disappointingly, the share price is down 3.7% in the last year.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
CarMax was able to grow its EPS at 16% per year over three years, sending the share price higher. The average annual share price increase of 9.4% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on CarMax’s earnings, revenue and cash flow.
A Different Perspective
CarMax shareholders are down 3.7% for the year, but the market itself is up 3.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 4.7% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. The data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
CarMax is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.