Shorts Circle CarMax Stock Before Earnings

KMX stock has been climbing the charts since a March post-earnings surge

by Emma Duncan

Published on Jun 20, 2019 at 12:32 PM

Car resale giant CarMax, Inc (NYSE:KMX) is slightly lower this afternoon, last seen down 0.6% at $83.01. Traders are most likely gearing up for the company's first-quarter earnings report, slated for release before the market opens tomorrow, June 21. Below we will take a look at how KMX has been doing on the charts, and what the options market is pricing in for the stock's post-earnings moves.

CarMax stock has being climbing the charts since a late-March post-earnings bull gap. Year-to-date, the security has added just over 30%, and after consolidating atop the 40-day moving average and $76 mark, KMX touched a record high of $84.99 this past Monday, June 17.

Revised Daily KMX Since Jan with 40MA

Digging into CarMax's earnings history, the stock has closed higher the day after earnings in six of the last eight quarters -- including a 9.6% surge in March, as well as  a 12.9% gain this time last year. Over the past two years, the shares have swung an average of 5.6% the day after earnings, regardless of direction. This time around, the options market is pricing in a larger-than-usual 8.7% swing for Friday's trading. 

Looking toward analyst sentiment, CarMax stock has scored several bull notes ahead of earnings. Just this week, KMX saw price-target hikes from both Credit Suisse and RBC -- to $90 and $92, respectively. Likewise, the security hosts 10 "buy" or better ratings, just one "hold," and zero "sells." However, the consensus 12-month price target of $85.46 is just a hair's breadth from current levels. Should the company once again report stronger-than-expected earnings, there's room for additional price-target increases.

A strong earnings showing could also shake loose some shorts. Short interest surged more than 30% in the most recent reporting period, and now accounts for nearly 13% of KMX's total available float. At the stock's average pace of trading, it would take more than 12 sessions to buy back these bearish bets -- ample fuel for a potential short squeeze to drive the shares to new heights.

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