Buy, Sell Or Hold CarMax Stock?
SAN DIEGO, CALIFORNIA - APRIL 24: Vehicles for sale are parked in a lot at a CarMax dealership on ... More April 24, 2025 in San Diego, California. (Photo by)
CarMax (NYSE:KMX) stock surged nearly 6% during trading on Friday. These gains were driven by the company reporting better-than-expected Q1 results, with revenue rising around 6% year-over-year to $7.55 billion, aligning with estimates, while earnings exceeded predictions at $1.38 per share. CarMax experienced a 6.6% rise in same-store sales year-over-year during the quarter, indicating a positive shift, as the company had been experiencing a slight decline in same-store sales over the past two years. Additionally, the company noted an improvement in its gross margins, with retail gross profit per used unit nearing an all-time high, fueled by increased demand and cost efficiencies in its logistics and reconditioning operations.
Despite the robust earnings, we contend that CarMax stock appears unappealing – making it a very poor choice to purchase at its current price around $69. We identify several significant concerns regarding KMX stock, which renders it very unappealing as its current valuation seems moderate. Our conclusion is based on comparing KMX's current valuation with its operational performance over recent years, along with its present and historical financial health. Our analysis of CarMax across key metrics including Growth, Profitability, Financial Stability, and Downturn Resilience indicates that the company demonstrates a very weak operational performance and financial condition, as outlined below. However, if you are looking for upside with reduced volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative – having outperformed the S&P 500 and achieved returns exceeding 91% since its inception.
How Does CarMax's Valuation Compare to The S&P 500?
When considering your expenditure per dollar of sales or profit, KMX stock seems somewhat expensive in relation to the broader market.
• CarMax possesses a price-to-sales (P/S) ratio of 0.4 compared to a figure of 3.1 for the S&P 500
• Additionally, the company's price-to-free cash flow (P/FCF) ratio stands at 63.0 compared to 20.9 for the S&P 500
• Moreover, it has a price-to-earnings (P/E) ratio of 19.7 in contrast to the benchmark's 26.9
How Have CarMax's Revenues Changed Over Recent Years?
CarMax's Revenues have seen marginal growth over the past few years.
• CarMax has experienced an average decline of 6.1% in its top line over the last 3 years (versus a 5.5% increase for S&P 500)
• Its revenues have decreased 0.7% from $27 billion to $26 billion in the last 12 months (against a 5.5% growth for S&P 500)
• Additionally, its quarterly revenues grew 6.7% to $6.0 billion in the latest quarter compared to $5.6 billion a year prior (in contrast to a 4.8% improvement for S&P 500)
How Profitable Is CarMax?
CarMax's profit margins are significantly below those of most companies in the Trefis coverage universe.
• CarMax's Operating Income for the last four quarters was $-221 million, which signifies a very poor Operating Margin of -0.8%
• CarMax's Operating Cash Flow (OCF) for this period was $624 million, indicating a very poor OCF Margin of 2.4% (compared to 14.9% for S&P 500)
• For the four-quarter period, CarMax's Net Income was $501 million – reflecting a very poor Net Income Margin of 1.9% (against 11.6% for S&P 500)
Does CarMax Appear Financially Stable?
CarMax's balance sheet appears very fragile.
• CarMax's total Debt was $19 billion at the end of the most recent quarter, whereas its market capitalization is $11 billion (as of 6/21/2025). This reveals a very poor Debt-to-Equity Ratio of 194.8% (compared to 19.4% for S&P 500). [Note: A lower Debt-to-Equity Ratio is preferred]
• Cash (including cash equivalents) constitutes $247 million of the $27 billion in Total Assets for CarMax. This results in a very poor Cash-to-Assets Ratio of 0.9%
How Resilient Is KMX Stock In A Downturn?
KMX stock has performed worse than the benchmark S&P 500 index during several recent downturns. Concerned about the effects of a market collapse on KMX stock? Our dashboard How Low Can CarMax Stock Go In A Market Crash? offers a comprehensive analysis of the stock's performance during and following previous market crashes.
• KMX stock plummeted 64.0% from a peak of $154.85 on 9 November 2021 to $55.69 on 21 October 2022, compared to a peak-to-trough drop of 25.4% for the S&P 500
• The stock has not yet recovered to its pre-Crisis peak
• The highest value the stock has reached since then is $89.19 on 18 February 2025 and is currently trading around $69
• KMX stock declined 56.6% from a high of $101.90 on 20 February 2020 to $44.27 on 20 March 2020, versus a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 10 August 2020
• KMX stock dropped 78.7% from a peak of $29.25 on 24 January 2007 to $6.23 on 20 November 2008, compared to a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 8 October 2010
Putting It All Together: Implications for KMX Stock
In conclusion, CarMax's performance across the aforementioned parameters is summarized as follows:
• Growth: Neutral
• Profitability: Extremely Weak
• Financial Stability: Extremely Weak
• Downturn Resilience: Very Weak
• Overall: Very Weak
This situation is not accurately reflected in the stock's moderate valuation, which is why we consider it to be very unattractive, reinforcing our assessment that KMX is a very poor stock to buy.
While it would be wise to steer clear of KMX stock for the time being, you might want to investigate the Trefis Reinforced Value (RV) Portfolio, which has surpassed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver robust returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks offers a flexible approach to capitalize on favorable market conditions while mitigating losses when markets decline, as elaborated in RV Portfolio performance metrics.
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