For how long will CarMax’s speedy growth continue?
CarMax, Inc. (NYSE:KMX) is one of the largest used-car retailers in the United States. They have more than 200 stores nationwide, and during the latest fiscal year sold nearly 830,000 used cars and 460,000 wholesale vehicles at its in-store auctions.
On April 12, CarMax announced a partnership with Dunkin’. For the promotional event, CarMax customers who participate in the 24-Hour Test Drive will be incentivized to do so by a $10 Dunkin’ gift card. The joint promotion will run through until May 16, so just under one full month.
KMX stock price has already more than doubled over the past 12 months when CarMax stock bottomed at a 52-week low of $61.23. Additionally, shares of CarMax stock have grown nearly 40% year-to-date and KMX is trading down just 5.4% from its 52-week high of $136.54.
From a fundamental point of view, CarMax is lacking in some incredibly important areas. For starters, CarMax's balance sheet is far from ideal. CarMax currently owes a massive $15.53 billion in total debt, which is made worse by the fact KMX only holds $132.32 million in cash. This translates to the fact that CarMax’s growth will be severely limited over the next few years.
In addition, KMX recently snagged a new all-time high of $136.54 in March. CarMax stock now trades at an inflated price-earnings ratio of 28.77. The best thing CarMax has going for it at the moment is a solid history of top and bottom-line growth, and its impressive year-over-year growth of 100%.
Lastly, the equity’s Schaeffer's Volatility Index (SVI) of 30%, which sits in the relatively low 7th percentile of its annual range. This implies option traders are pricing in low volatility expectations right now.