Is CarMax Stock Attractive After Q1 Surprise?

CarMax (NYSE:KMX) stock jumped close to 6% in trading on Friday. The gains come as the company posted better than expected Q1 results, with revenue rising by about 6% year-over-year to $7.55 billion, in line with estimates, while earnings beat estimates coming in at $1.38 per share. CarMax saw a 6.6% increase in same-store sales year-on-year during the quarter, marking a turnaround, as the company has been seeing same store sales decline marginally over the last two years. The company also saw improvement in its gross margins, with retail gross profit per used unit approaching an all-time high, driven by stronger demand and cost savings in the logistics and reconditioning operations.

Despite the strong earnings, we believe that CarMax stock looks quite unattractive – making it a very bad pick to buy at its current price of around $69. We believe there are several major concerns with KMX stock, which makes it very unattractive given that its current valuation looks moderate. We arrive at our conclusion by comparing the current valuation of KMX stock with its operating performance over the recent years, as well as its current and historical financial condition. Our analysis of CarMax along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a very weak operating performance and financial condition, as detailed below. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

How Does CarMax’s Valuation Look vs. The S&P 500?

Going by what you pay per dollar of sales or profit, KMX stock looks slightly expensive compared to the broader market.

• CarMax has a price-to-sales (P/S) ratio of 0.4 vs. a figure of 3.1 for the S&P 500
• Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 63.0 compared to 20.9 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 19.7 vs. the benchmark’s 26.9

How Have CarMax’s Revenues Grown Over Recent Years?

CarMax’s Revenues have grown marginally over recent years.

• CarMax has seen its top line decline at an average rate of 6.1% over the last 3 years (vs. increase of 5.5% for S&P 500)
• Its revenues have decreased 0.7% from $27 Bil to $26 Bil in the last 12 months (vs. growth of 5.5% for S&P 500)
• Also, its quarterly revenues grew 6.7% to $6.0 Bil in the most recent quarter from $5.6 Bil a year ago (vs. 4.8% improvement for S&P 500)

How Profitable Is CarMax?

CarMax’s profit margins are considerably worse than most companies in the Trefis coverage universe.

• CarMax’s Operating Income over the last four quarters was $-221 Mil, which represents a very poor Operating Margin of -0.8%
• CarMax’s Operating Cash Flow (OCF) over this period was $624 Mil, pointing to a very poor OCF Margin of 2.4% (vs. 14.9% for S&P 500)
• For the last four-quarter period, CarMax’s Net Income was $501 Mil – indicating a very poor Net Income Margin of 1.9% (vs. 11.6% for S&P 500)

Does CarMax Look Financially Stable?

CarMax’s balance sheet looks very weak.

• CarMax’s Debt figure was $19 Bil at the end of the most recent quarter, while its market capitalization is $11 Bil (as of 6/21/2025). This implies a very poor Debt-to-Equity Ratio of 194.8% (vs. 19.4% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $247 Mil of the $27 Bil in Total Assets for CarMax.  This yields a very poor Cash-to-Assets Ratio of 0.9%

How Resilient Is KMX Stock During A Downturn?

KMX stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on KMX stock? Our dashboard How Low Can CarMax Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.

Inflation Shock (2022)

• 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 around $69

Covid Pandemic (2020)

• 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
• The stock fully recovered to its pre-Crisis peak by 10 August 2020

Global Financial Crisis (2008)

• 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
• The stock fully recovered to its pre-Crisis peak by 8 October 2010

Putting All The Pieces Together: What It Means For KMX Stock

In summary, CarMax’s performance across the parameters detailed above are as follows:

• Growth: Neutral
• Profitability: Extremely Weak
• Financial Stability: Extremely Weak
• Downturn Resilience: Very Weak
• Overall: Very Weak

This isn’t appropriately reflected in the stock’s moderate valuation which is why we think it is very unattractive, which supports our conclusion that KMX is a very bad stock to buy.

While you would do well to avoid KMX stock for now, you could explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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