Subject: Re: Car Shipping Issues
Some interesting comments on KMX from the Sequoia guys:...

Thanks for posting that.

It seems many Carmax investors are throwing in the towel, thinking the recent weakness is permanent.
I was having a glance at the Value Line report.
Not that I believe their forecasts, but they are often a good touchstone for the consensus of "the market".

In short, their expectations are very poor. They expect a share price in the $65-95 range 3-5 years out, which is where it is now ($83-ish).
It seems to be mainly because they expect growth, but with very low profitability.
They expect revenue per share 3-5 years hence to be up 20% from the past three year average (= growth at half the historical rate), but profits up only 2%.
They anticipate net profit margin of 1.7% - 1.9% now and into the future.
For comparison, the average 2013-2021 was 4.07%, lowest year 3.6%.
I'm not sure how they arrive at that 1.9% level of pessimism, other than assuming the past year is the permanent new normal.
Maybe they figure that Carmax's cost of financing will remain high with prevailing interest rates, but they won't ever be able to pass that along?

FWIW, if their revenue forecast is right but net profit margin rebounds to 3.5%, still below the old range, then EPS would be a pinch over $7, and today's price is just under 12 times that.
I think that sort of return to profitability (or more) is a more likely scenario. I think they will retain their long run success of growth, and will both deserve and receive good valuation levels after the cyclical and one-time issues.

Of course, as always I could be wrong : )
I'm currently a fair bit underwater, though that's not unusual.

Jim