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After CarMax, Inc.’s (NYSE:KMX) earnings announcement on 28 February 2019, the consensus outlook from analysts appear somewhat bearish, as a 2.1% rise in profits is expected in the upcoming year, compared with the higher past 5-year average growth rate of 7.8%. Currently with trailing-twelve-month earnings of US$842m, we can expect this to reach US$860m by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.
Can we expect CarMax to keep growing?
Over the next three years, it seems the consensus view of the 15 analysts covering KMX is skewed towards the positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.
This results in an annual growth rate of 3.8% based on the most recent earnings level of US$842m to the final forecast of US$992m by 2022. EPS reaches $6.51 in the final year of forecast compared to the current $4.83 EPS today. With a current profit margin of 4.4%, this movement will result in a margin of 4.5% by 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For CarMax, there are three essential factors you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is CarMax worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CarMax is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of CarMax? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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 firstname.lastname@example.org. 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.