We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Here's Why You Should Offload CarMax Stock From Your Portfolio
Read MoreHide Full Article
Key Takeaways
KMX is seeing declining sales volumes, with negative service margins and additional pressure expected in Q4.
To stay competitive, CarMax plans to cut margins, narrow pricing gaps and boost marketing spend YoY.
High leverage and intense competition from dealers and online sellers threaten CarMax's margins.
CarMax, Inc. (KMX - Free Report) , the largest retailer of used vehicles in the United States, is struggling with declining sales volume, rising marketing spend and high competition.
Let’s see why you should consider offloading this Zacks Rank #5 (Strong Sell) stock from your portfolio.
Expected Decline in Sales, High Debt Levels to Ail CarMax
Service margins were negative in the fiscal third quarter and are under pressure due to softer sales volumes, since service margins worsen when sales slow. The company expects the fiscal fourth-quarter sales performance to be pressured, which may continue to impact its service margin.
CarMax’s average selling prices have trended higher and appear less appealing to customers. To remain a preferred option, the company plans to narrow the gap between its pricing and the broader market by reducing margins and backing this strategy with increased marketing spending. The marketing spend on a total unit basis is expected to be up year over year in the fiscal fourth quarter.
CarMax’s stretched balance sheet plays a spoilsport. As of Nov. 30, 2025, the company had cash/cash equivalents and long-term debt of $204.9 million and $1.17 billion, respectively. Its long-term debt-to-capital ratio stands at 0.73, higher than the auto sector's 0.18. The elevated leverage makes it difficult for the firm to tap growth opportunities and restricts the financial flexibility. The company’s times interest earned ratio of 6.8 is lower than the auto sector’s 25.24.
Automotive retail is highly competitive and fragmented. CarMax faces competition from traditional dealers, online platforms and private sellers, all offering similar vehicles at similar prices. Franchised new car dealers may have an edge with certified pre-owned programs. The rise of online car buying and well-funded e-commerce entrants with larger inventories and better digital experiences could pressure KMX’s margins and business model. Failing to respond effectively may significantly impact the company’s sales and operations.
The Zacks Consensus Estimate for GM’s 2025 and 2026 EPS has improved 8 cents and 47 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for OPLN’s 2025 sales and earnings implies year-over-year growth of 9.4% and 48.2%, respectively. EPS estimates for 2025 have improved 9 cents in the past 60 days. The same for 2026 has improved 2 cents in the past 30 days.
The Zacks Consensus Estimate for REVG’s fiscal 2026 sales and earnings implies year-over-year growth of 8.1% and 37.8%, respectively. EPS estimates for fiscal 2026 and 2027 have improved 20 cents and 26 cents, respectively, in the past 30 days.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Here's Why You Should Offload CarMax Stock From Your Portfolio
Key Takeaways
CarMax, Inc. (KMX - Free Report) , the largest retailer of used vehicles in the United States, is struggling with declining sales volume, rising marketing spend and high competition.
Let’s see why you should consider offloading this Zacks Rank #5 (Strong Sell) stock from your portfolio.
Expected Decline in Sales, High Debt Levels to Ail CarMax
Service margins were negative in the fiscal third quarter and are under pressure due to softer sales volumes, since service margins worsen when sales slow. The company expects the fiscal fourth-quarter sales performance to be pressured, which may continue to impact its service margin.
CarMax’s average selling prices have trended higher and appear less appealing to customers. To remain a preferred option, the company plans to narrow the gap between its pricing and the broader market by reducing margins and backing this strategy with increased marketing spending. The marketing spend on a total unit basis is expected to be up year over year in the fiscal fourth quarter.
CarMax’s stretched balance sheet plays a spoilsport. As of Nov. 30, 2025, the company had cash/cash equivalents and long-term debt of $204.9 million and $1.17 billion, respectively. Its long-term debt-to-capital ratio stands at 0.73, higher than the auto sector's 0.18. The elevated leverage makes it difficult for the firm to tap growth opportunities and restricts the financial flexibility. The company’s times interest earned ratio of 6.8 is lower than the auto sector’s 25.24.
Automotive retail is highly competitive and fragmented. CarMax faces competition from traditional dealers, online platforms and private sellers, all offering similar vehicles at similar prices. Franchised new car dealers may have an edge with certified pre-owned programs. The rise of online car buying and well-funded e-commerce entrants with larger inventories and better digital experiences could pressure KMX’s margins and business model. Failing to respond effectively may significantly impact the company’s sales and operations.
Stocks to Consider
Some better-ranked stocks in the auto space are General Motors Company (GM - Free Report) , OPENLANE, Inc. (OPLN - Free Report) and REV Group, Inc. (REVG - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GM’s 2025 and 2026 EPS has improved 8 cents and 47 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for OPLN’s 2025 sales and earnings implies year-over-year growth of 9.4% and 48.2%, respectively. EPS estimates for 2025 have improved 9 cents in the past 60 days. The same for 2026 has improved 2 cents in the past 30 days.
The Zacks Consensus Estimate for REVG’s fiscal 2026 sales and earnings implies year-over-year growth of 8.1% and 37.8%, respectively. EPS estimates for fiscal 2026 and 2027 have improved 20 cents and 26 cents, respectively, in the past 30 days.