Bear of the Day: America's Car-Mart (CRMT)
America’s Car-Mart CRMT operates automotive dealerships in the United States. The company primarily sells used vehicles while providing financing for its customers. The auto retailer focuses on the Buy Here/Pay Here segment of the used car market. America’s Car-Mart operates its dealerships in small cities and rural locations, mainly in the South-Central region of the country.
The Zacks Rundown
America’s Car-Mart, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Automotive – Retail and Whole Sales industry group. This industry ranks in the bottom 13% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.
Candidates in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when included in a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Despite a rebound in stocks this year, CRMT shares have not been participating lately. The stock has experienced considerable volatility over the past year. CRMT hit a 52-week low earlier this month, all while the general market nears new highs.
Recent Earnings Misses and Deteriorating Outlook
CRMT has fallen short of earnings estimates in each of the last four quarters. The company most recently reported a fiscal second-quarter loss earlier in December of -$4.30/share, missing the $0.74/share consensus EPS estimate by a whopping -681.08%.
America’s Car-Mart has posted a trailing four-quarter average earnings miss of -210.38%. Consistently falling short of earnings estimates is a recipe for underperformance, and CRMT is no exception.
The company has been on the receiving end of negative earnings estimate revisions as of late. The current quarter’s outlook has been slashed by -222.73% in the past 60 days. The fiscal Q3 Zack Consensus Estimate stands at -$1.08/share, reflecting negative earnings growth of -569.57% relative to the year-ago period.
Image Source: Zacks Investment Research
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, CRMT stock is in a sustained downtrend. Notice how shares have plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, and a recent uptick presents a compelling short opportunity. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
Image Source: StockCharts
CRMT stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. America’s Car-Mart would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. CRMT shares have fallen more than 23% in the past 6 months alone, all while the major indexes have shown strength.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that CRMT stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of CRMT shares until the situation shows major signs of improvement.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
America's Car-Mart, Inc. (CRMT) : Free Stock Analysis Report
