Could CarMax Stock’s Cash Flow Spark the Next Rally?
Here is why we think CarMax (KMX) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Let’s see the numbers.
- Cash Yield: CarMax offers an impressive cash flow yield of 10.4%.
- Growing: Last 12 month revenue growth of 1.8% means that the cash pile is going to grow.
- Valuation Discount: KMX stock is currently trading at 37% below 3-month high, 50% below 1-year high, and 50% below 2-year high.
Free Cash Flow Yield refers to free cash flow per share / stock price. Why it matters? If a company produces high amount of cash per share, it can be used to fuel additional revenue growth, or simply paid through dividends or buybacks to shareholders. For quick background, CarMax operates as a retailer of used vehicles in the U.S., offering sales and auto financing through approximately 230 stores nationwide.
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure.
| KMX | S&P Median | |
|---|---|---|
| Sector | Consumer Discretionary | – |
| Industry | Automotive Retail | – |
| Free Cash Flow Yield | 10.4% | 3.9% |
| Revenue Growth LTM | 1.8% | 5.2% |
| Operating Margin LTM | -0.9% | 18.6% |
| PS Ratio | 0.2 | 3.2 |
| PE Ratio | 12.6 | 23.9 |
| Discount vs 3-Month High | -37.3% | -5.0% |
| Discount vs 1-Year High | -49.7% | -9.7% |
| Discount vs 2-Year High | -49.7% | -11.4% |
But do these numbers tell the full story? Read Buy or Sell KMX Stock to see if CarMax still has an edge that holds up under the hood.
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The Point? The Market Can Notice, And Reward
The below statistics are from “high FCF yield at with growth and discount” selection strategy since 12/31/2016. The stats are calculated based on selections made monthly, and assuming that a stock once picked, can not be re-picked for next 180 days.
- Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
- Win rate (percentage of picks returning positive) of > 70% for both 6-month and 12-month periods
But Consider The Risk
That said, KMX isn’t immune to big sell-offs. It plunged nearly 79% in both the Dot-Com Bubble and the Global Financial Crisis. The Inflation Shock wasn’t kind either, with a drop of about 64%. Even the Covid pandemic and the 2018 correction triggered declines of 56% and 30%, respectively. Strong fundamentals matter, but when the market turns sharply negative, KMX can still take a serious hit.
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.
Picking winners on a consistent basis is not an easy task – especially given the volatility associated with a single stock. Instead, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. 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.