KMX Slides 20% In A Single Day, Now Is Not The Time To Buy The Stock

We believe there is a lot to fear in KMX stock given its overall Very Weak operating performance and financial condition. Hence, despite its Low valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $6.9 Bil in market cap, CarMax operates as a U.S. used vehicle retailer, providing sales and auto financing through approximately 230 stores nationwide.

[1] Valuation Looks Low

This table highlights how KMX is valued vs broader market. For more details see: KMX Valuation Ratios

[2] Growth Is Inconsistent

• CarMax has seen its top line shrink at an average rate of -6.9% over the last 3 years
• Its revenues have grown 3.2% from $26 Bil to $27 Bil in the last 12 months
• Also, its quarterly revenues grew 6.1% to $7.5 Bil in the most recent quarter from $7.1 Bil a year ago.

This table highlights how KMX is growing vs broader market. For more details see: KMX Revenue Comparison

[3] Profitability Appears Very Weak

• KMX last 12 month operating income was $-166 Mil representing operating margin of -0.6%
• With cash flow margin of 3.9%, it generated nearly $1.0 Bil in operating cash flow over this period
• For the same period, KMX generated nearly $558 Mil in net income, suggesting net margin of about 2.1%

This table highlights how KMX profitability vs broader market. For more details see: KMX Operating Income Comparison

[4] Financial Stability Looks Very Weak

• KMX Debt was $19 Bil at the end of the most recent quarter, while its current Market Cap is $6.9 Bil. This implies Debt-to-Equity Ratio of 274.0%
• KMX Cash (including cash equivalents) makes up $263 Mil of $27 Bil in total Assets. This yields a Cash-to-Assets Ratio of 1.0%

[4] Downturn Resilience Is Weak

KMX has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• KMX stock fell 64.0% from a high of $154.85 on 9 November 2021 to $55.69 on 21 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $89.19 on 18 February 2025 , and currently trades at $45.60

 
2020 Covid Pandemic

• KMX stock fell 56.6% from a high of $101.90 on 20 February 2020 to $44.27 on 20 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 10 August 2020

 
2008 Global Financial Crisis

• KMX stock fell 78.7% from a high of $29.25 on 24 January 2007 to $6.23 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 8 October 2010

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read KMX Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.