Back to top

Image: Bigstock

CarMax (KMX) Soars to 52-Week High, Time to Cash Out?

Read MoreHide Full Article

Shares of CarMax (KMX - Free Report) have been strong performers lately, with the stock up 12.4% over the past month. The stock hit a new 52-week high of $140.24 in the previous session. CarMax has gained 47.9% since the start of the year compared to the -3.8% move for the Zacks Retail-Wholesale sector and the 35.1% return for the Zacks Automotive - Retail and Wholesale - Parts industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on June 25, 2021, CarMax reported EPS of $2.63 versus consensus estimate of $1.61 while it beat the consensus revenue estimate by 24.26%.

For the current fiscal year, CarMax is expected to post earnings of $7.49 per share on $26.44 billion in revenues. This represents a 65.71% change in EPS on a 39.54% change in revenues. For the next fiscal year, the company is expected to earn $7.4 per share on $27.41 billion in revenues. This represents a year-over-year change of -1.14% and 3.64%, respectively.

Valuation Metrics

CarMax may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

CarMax has a Value Score of C. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 18.7X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 22.2X versus its peer group's average of 19.4X. Additionally, the stock has a PEG ratio of 1.08. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, CarMax currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if CarMax fits the bill. Thus, it seems as though CarMax shares could have potential in the weeks and months to come.

How Does CarMax Stack Up to the Competition?

Shares of CarMax have been rising, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including AutoZone (AZO - Free Report) , Caseys General Stores (CASY - Free Report) , and Lithia Motors (LAD - Free Report) , all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

The Zacks Industry Rank is in the top 5% of all the industries we have in our universe, so it looks like there are some nice tailwinds for CarMax, even beyond its own solid fundamental situation.

Published in