Needham funds recently released its 4QFY2014 commentary. Its portfolio managers – Chris Retzler and John O. Barr –Â believe that a strong dollar is hurting sales of capital goods and consumer goods company which have sizable international presence. So, an ideal strategy for 2015 is to focus on domestic, small-cap equities. The fund managers have talked about their holdings like Dick's Sporting Goods (DKS) and CarMax (KMX) which are domestic retailers, and Express Scripts (ESRX), Reis (REIS) and Constant Contact (CTCT) which are predominantly U.S. based. Here's a look at one of these companies – CarMax.
CarMax is the nation’s largest retailer of used cars, based on the 526,929 used vehicles it retailed during the fiscal year ended February 28, 2014. As of the end of fiscal 2014, the company operated 131 used car superstores in 64 metropolitan markets. CarMax is the first used vehicle retailer to offer a large selection of high quality used vehicles at low, “no-haggle” prices using a customer-friendly sales process in an attractive, modern sales facility. It allows customers to shop for vehicles the same way they shop for items at other “big-box” retailers. In addition the company also provides financing alternatives to its customers through CAF, its own finance operation, and third-party financing providers.
The company's EPS forecast for the current fiscal year is $2.60 and next year is $2.91. According to the consensus estimates, its top line is expected to grow 13.40% current year and 10.30% next year. It is trading at a forward P/E of 22.87. Out of 16 analysts covering the company, 9 are positive and have buy recommendations, 6 have hold ratings and one has a sell rating.
The following table shows revenue, EPS and other key metrics of the company over the last couple of years.
Table1: Financial Data of CarMax
Source: Gurufocus Value Screens
Last quarter, CarMax posted 16% revenue growth, 22% net earnings growth, and 28% earnings per share growth. The company reported a 7.4% increase in comparable-store sales, versus 3.7% estimated. During this period, the company opened four stores, two in new markets for CarMax –Â Tupelo, Mississippi and Reno, Nevada –Â and two in existing markets –Â Portland, Oregon and Raleigh, North Carolina.
In addition to store and store traffic growth, the company's web traffic also continued to expand. For the third quarter compared to last year, average monthly web visits grew over 17% to nearly 14 million. Business to CarMax's mobile site continued to represent approximately 30% of total visits while visits utilizing its mobile apps represented another 15% of the total.
According to Needham's portfolio managers, the company has a customer friendly model and is still in early phase of national roll out. CarMax is trading at 22.87 times its FY2016 EPS (ending February). The company's EPS has grown from $1.79 in FY2012 to $2.50 for twelve months ended November 2014. Analysts are expecting the company's EPS to grow by 16% in FY2015 and 12% in FY2016. Given the company's long term growth potential, I believe the company is a good buy.
