CarMax Stock Stalling Near Two-Year Lows

KMX has declined nearly 30% year-to-date

Apr 19, 2022 at 10:20 AM
facebook twitter linkedin

Exactly one week ago, CarMax, Inc. (NYSE: KMX) was dinged by a dismal post-earnings reaction. Now drifting near annual lows, is there an attractive entry point for the auto retailer? 

The earnings report cited industry-wide issues that were self-propagated with ridiculously high pricing. However, in the latest quarter, customers seem to be resisting the soaring prices, showing a 5.2% year-over-year drop in total vehicles sold. According to the company, “We believe a number of macro factors weighed on our fourth quarter unit sales performance, including declining consumer confidence, the Omicron-fueled surge in COVID cases, vehicle affordability, and the lapping of stimulus benefits paid in the prior year period.” 

CarMax stock is now down 28.5% in 2022, dangerously close to last week's two-year bottom of $90.55. The shares have carved out a channel of lower lows since November, with their declining 40-day moving average containing the larger breakouts. 

Moreover, CarMax stock currently trades at a forward price-earnings ratio of 12.8 and a price-sales ratio of 0.53. A major concern, though, is that KMX carries a whopping $18.73 billion in total debt on their balance sheet and holds just $62.6 million in cash.

The auto retailer is also expected to end the current fiscal year with only 3.4% revenue growth and see an 8% decline in earnings. In addition, for the next fiscal year, CarMax is estimated increase revenues by 2.1% and earnings by 3.1%. Overall, the auto retail company offers an intriguing valuation, but very little security and a slow growth rate, making CarMax stock a relatively high-risk value play from a fundamental perspective.


Special Offers from Schaeffer's Trading Partners