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CarMax (KMX) Gains But Lags Market: What You Should Know

Zacks Equity Research

CarMax (KMX) closed the most recent trading day at $97.83, moving +0.26% from the previous trading session. The stock lagged the S&P 500's daily gain of 0.75%. Meanwhile, the Dow gained 0.69%, and the Nasdaq, a tech-heavy index, added 1.32%.

Prior to today's trading, shares of the used car dealership chain had gained 2.59% over the past month. This has outpaced the Retail-Wholesale sector's gain of 0.59% and lagged the S&P 500's gain of 3.42% in that time.

Wall Street will be looking for positivity from KMX as it approaches its next earnings report date. On that day, KMX is projected to report earnings of $1.14 per share, which would represent year-over-year growth of 4.59%. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $4.65 billion, up 8.15% from the year-ago period.

For the full year, our Zacks Consensus Estimates are projecting earnings of $5.29 per share and revenue of $19.78 billion, which would represent changes of +10.44% and +8.83%, respectively, from the prior year.

It is also important to note the recent changes to analyst estimates for KMX. These revisions typically reflect the latest short-term business trends, which can change frequently. As a result, we can interpret positive estimate revisions as a good sign for the company's business outlook.

Research indicates that these estimate revisions are directly correlated with near-term share price momentum. We developed the Zacks Rank to capitalize on this phenomenon. Our system takes these estimate changes into account and delivers a clear, actionable rating model.

The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. The Zacks Consensus EPS estimate has moved 0.12% higher within the past month. KMX is currently sporting a Zacks Rank of #2 (Buy).

Digging into valuation, KMX currently has a Forward P/E ratio of 18.55. For comparison, its industry has an average Forward P/E of 19.25, which means KMX is trading at a discount to the group.

Meanwhile, KMX's PEG ratio is currently 1.48. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. The Automotive - Retail and Wholesale - Parts was holding an average PEG ratio of 1.6 at yesterday's closing price.

The Automotive - Retail and Wholesale - Parts industry is part of the Retail-Wholesale sector. This group has a Zacks Industry Rank of 27, putting it in the top 11% of all 250+ industries.

The Zacks Industry Rank gauges the strength of our industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

To follow KMX in the coming trading sessions, be sure to utilize Zacks.com.


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