The most recent earnings release CarMax, Inc.'s (NYSE:KMX) announced in February 2019 showed that the company gained from a robust tailwind, eventuating to a double-digit earnings growth of 27%. Below is a brief commentary on my key takeaways on how market analysts predict CarMax's earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Market analysts' consensus outlook for this coming year seems rather muted, with earnings increasing by a single digit 1.6%. The following year doesn't look much more exciting, though earnings does reach US$992m in 2022.
Even though it is helpful to be aware of the rate of growth each year relative to today’s level, it may be more beneficial to determine the rate at which the business is growing every year, on average. The benefit of this technique is that we can get a bigger picture of the direction of CarMax's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 3.8%. This means that, we can expect CarMax will grow its earnings by 3.8% every year for the next few years.
For CarMax, I've compiled three pertinent aspects 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 KMX 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 KMX is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of KMX? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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.