Subject: Re: OT: Car Max (KMX)
I have not investigated the company but do have a little scuttlebutt: here's our experience at Car Max today.

They have lots of inventory, about 400 vehicles at this location. Everything we looked at was in nice condition and priced sky-high.



Thanks for that - it illustrates how there's still a lot of disruption in the used car business. I had the same experience recently - I wanted a 2-3 year-old Tiguan and the VW dealership quoted me prices higher than the new one I ended up buying.

I think the basic idea with CarMax is that they are an exceptionally well-managed, steady company that uses capital carefully and has been steadily growing for many years. They made about $888m in the year up to February 2020 (just before you know what hit the fan.) And they made $842 the year before that. They now have a market cap of about $11.4b, so they are trading at 13x the net income they had in 2018 and 2019. Then we had a global hissy fit, and lots of markets went crazy, used cars being a prominent example. That meant that CarMax had a great 2021 with its appreciated inventory ($1.15b in net income) and a terrible 2022 with no cars available ($0.48b). Based on 2022 alone, they are at 23 times earnings, but based on the 3 previous years, they are at about 11-13 times net.

Your scuttlebutt tends to confirm that they are still having problems sourcing cheap cars, and so their revenues and earnings will probably still be down this year. But this too shall pass, since I don't see any reason to think their business has been permanently impaired. In addition, they have traditionally repurchased a lot of shares, so even with lower earnings last year, their $3.03 eps is actually close to the 2018 level ($3.63) and higher than anytime in the 4 years before 2018.

So I think they are a good value here, for anyone who can be patient and wait for the dust to settle and for normal markets conditions to return. I don't think they need to worry too much about interest rates or unemployment or recessions - people need to have a car, and KMX has a good way of finding one for them, with a pretty much fixed $2000 cut that they take. And as their big online competitor Carvana circles the drain, they will be able to continue to take market share (which is still only at 4%) for many years.

dtb, 3% position