CarMax stock reaction and insider activity after earnings

CarMax (KMX) drew attention after its latest earnings report initially triggered a sell-off. The stock then rebounded in June as analyst upgrades and insider buying, including purchases by the CEO and board members, supported sentiment.

At around $51.01, CarMax’s recent rebound has been strong, with a 30 day share price return of 6.25% and a year to date share price return of 29.83%, even though the 1 year total shareholder return is down 23.8%.

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CarMax’s rebound and insider buying have bulls arguing the stock is resetting higher, while the weak 1 year return keeps bears focused on past pain. Which camp does the current valuation favor?

Most Popular Narrative: 1% Undervalued

CarMax is trading very close to the most widely followed fair value estimate of about $51.31, so the current price leaves little room for big valuation gaps.

CarMax's initiative to broaden its full credit spectrum lending capabilities through CarMax Auto Finance (CAF) is expected to increase CAF income and net interest margins over time. This initiative aims to capture more sales and improve financing income, impacting earnings positively.

Want to see what earnings profile sits behind that fair value line? The narrative leans on margin rebuild, flat revenue and a lower future earnings multiple than today.

Result: Fair Value of $51.31 (ABOUT RIGHT)

However, CarMax still faces pressure on wholesale gross profit per unit and rising competition for vehicle sourcing, which could squeeze margins if these headwinds persist.

Another view on CarMax using earnings multiples

The fair value narrative has CarMax looking roughly in line with analyst targets, but the current P/E of 32.1x tells a tougher story. It sits well above the US Specialty Retail industry at 19.6x, the peer average at 13.1x, and even the 24.7x fair ratio the market could drift toward over time. If earnings do not grow as expected, how much multiple compression risk are you really comfortable with?

For a closer look at what the numbers imply about this valuation gap, See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With sentiment on CarMax split between concern and optimism, this is a good time to review the data yourself and decide where you stand, starting with the 1 key reward and 3 important warning signs

Looking for more investment ideas beyond CarMax?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.