CarMax (NYSE:KMX) isn’t delivering what investors want to see from the company, and the prudent move right now is likely to stay out of the way and let the stock fall. CarMax is profitable but lacks growth, and unless there’s a drastic change, I am bearish on KMX stock for the remainder of 2024.
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CarMax sells used vehicles online and will often pay for trade-in vehicles. If you’ve been monitoring used-car prices, you’ll know that they went parabolic for a while but are now finally starting to normalize.
Well, maybe “normalize” is the wrong word to use since there’s nothing normal about vehicle prices nowadays. CarMax’s poor quarterly results may be emblematic of a broken used-vehicle market, and if CarMax can only deliver excuses instead of results, KMX stock is destined to stay parked on the side of the road.
Is CarMax Stock Headed for $100? Not Likely
Not long ago, TheFly reported on two share-price target raises for CarMax stock. First, Glenn Chin of Seaport Research raised the firm’s price target on KMX stock from $88 to $100 while reiterating a Buy rating on the shares. At that time, the stock had rallied from $60 to $88, and Chin assessed that there was “more room to run.”
Furthermore, Wedbush hiked its CarMax stock price target from $90 to $100 and maintained its Outperform rating on the shares. Wedbush was reportedly optimistic about CarMax into 2024, but now, they might end up changing their minds.
As it turned out, KMX stock plunged below $70 today, currently down 12.3%. Consequently, some analysts will probably have to revise their price targets. It looks like $100 just isn’t going to happen anytime soon.
Since I have the benefit of hindsight, I won’t blame these analysts for their ill-timed bullish calls. On the other hand, after CarMax stock had already gone from $60 to $88, the right stance was caution, not greed.
Besides, major changes in the used vehicle market will probably be needed before KMX stock can get to $100 and stay there. I’m not blaming CarMax entirely for this, but maybe customers have had enough of getting too little for their trade-ins and paying too much for used cars.
I’ve actually seen used cars on the market for around the same price as a brand-new version of the same vehicle. I don’t expect CarMax to reverse this trend single-handedly, but it’s hard to invest in a market sector when the product pricing seems unsustainable.
Disappointing Results, Lots of Excuses
Now, I’ll quit ranting and start talking about the actual data. CarMax stock dropped today because the company’s fourth-quarter Fiscal Year 2024 results fell short of Wall Street’s expectations.
Starting with the top-line figures, CarMax’s quarterly revenue declined 1.7% year-over-year to $5.63 billion, while analysts were looking for $5.78 billion in revenue. Even worse, CarMax earned $0.32 per share in Q4 of FY 2024, even though the consensus estimate was $0.46 per share.
As I mentioned earlier, used vehicle buyers may have had enough of getting low offers on their trade-ins. Maybe I’m wrong about this, but it could help to explain why CarMax only ended up buying 213,000 vehicles from consumers in Q4 of FY 2024, down 14.1% year-over-year.
Plus, here’s another disappointing fact. In CarMax’s quarterly press release, the company maintained its goal of selling “more than 2 million combined retail and wholesale units annually.” That’s fine, but then CarMax announced that it’s “extending the timeframe to between Fiscal Year 2026 and Fiscal Year 2030,” versus the previous target of achieving this goal by 2026.
Finally, it’s worth noting that CarMax made plenty of excuses for its disappointing quarterly results. In particular, CarMax cited “vehicle affordability challenges… widespread inflationary pressures, higher interest rates, tightened lending standards and low consumer confidence.” Along with all of that, CarMax’s press release also mentioned “uncertainty in the timing of market recovery” and “the recent volatility in vehicle values.”
Is CarMax Stock a Buy, According to Analysts?
On TipRanks, KMX comes in as a Hold based on four Buys, three Holds, and two Sell ratings assigned by analysts in the past three months. The average KMX stock price target is $82.13, implying 19% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell KMX stock, the most profitable analyst covering the stock (on a one-year timeframe) is Brian Nagel of Oppenheimer, with an average return of 15.32% per rating and a 67% success rate. Click on the image below to learn more.
Conclusion: Should You Consider KMX Stock?
Today, stock traders don’t seem particularly interested in hearing CarMax’s excuses. The share price had already run up quickly, and CarMax needed to deliver outstanding results.
Instead, CarMax’s loyal investors were greeted with disappointing data and a discouraging extension of the company’s vehicle sales target. Therefore, I am preparing for KMX stock to potentially lose more value, and I’m not considering making a share purchase this year.
