Shares of used automotive retailer CarMax (KMX, Financial) tumbled 17% in recent trading, closing at $66.45. This sharp decline follows the release of disappointing Q1 2025 results, where the company reported lower-than-expected EBITDA and EPS. Furthermore, CarMax (KMX) has suspended its long-term growth guidance amidst ongoing macroeconomic uncertainties, reflecting a lack of confidence in its future growth prospects.
CarMax (KMX, Financial), the largest used-vehicle retailer in the US, is currently facing several challenges. Despite being valued at a market capitalization of approximately $10.22 billion, the company is grappling with significant headwinds. Its financial health is under scrutiny, with warning signs of poor financial strength largely attributed to excessive debt. The Altman Z-score of 1.79 signals distress, suggesting a potential risk of bankruptcy within the next two years.
In terms of valuation, CarMax (KMX, Financial) exhibits a price-to-earnings (PE) ratio of 22.53 and a price-to-book (PB) ratio of 1.65. Though the stock is trading near its 52-week low, its GF Value indicates that CarMax (KMX) is Modestly Undervalued, with a GF Value estimate of $74.97. However, the company is struggling with profitability as evident from its declining gross margins, which have reduced at an average rate of 7.4% per year over the long term.
The recent performance of CarMax (KMX, Financial) has been marked by insider selling activity, with 22,878 shares sold in the last three months and no insider purchases. Additionally, the company has faced a slowdown in revenue growth over the past year, further compounded by significant long-term debt issuance.
In conclusion, while CarMax (KMX, Financial) continues to be a prominent player in the used-vehicle market, the current financial and macroeconomic challenges present substantial hurdles. Investors should remain cautious and consider these factors when evaluating the company's prospects.
