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Are Investors Undervaluing CarMax (KMX) Right Now?

Zacks Equity Research
·3 mins read

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

CarMax (KMX) is a stock many investors are watching right now. KMX is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value.

Another notable valuation metric for KMX is its P/B ratio of 4.06. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. KMX's current P/B looks attractive when compared to its industry's average P/B of 11.79. Over the past 12 months, KMX's P/B has been as high as 4.59 and as low as 1.92, with a median of 4.06.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. KMX has a P/S ratio of 0.8. This compares to its industry's average P/S of 1.14.

Finally, our model also underscores that KMX has a P/CF ratio of 17.22. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 24.26. Over the past 52 weeks, KMX's P/CF has been as high as 18.94 and as low as 6.65, with a median of 13.68.

Value investors will likely look at more than just these metrics, but the above data helps show that CarMax is likely undervalued currently. And when considering the strength of its earnings outlook, KMX sticks out at as one of the market's strongest value stocks.


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