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I'm stubborn, and therefore repetitive.
So for those few who might be interested, I really do think that Carmax is probably a good deal at these levels ($55.25).

They were a wonderful firm till the pandemic. Then they made bubble-style profits for a while during the post-pandemic car shortage. Then they had a wee hangover from the rush, now they are perhaps rising from the doldrums (?). The question is, will they get back anywhere near the old normal in terms of operating results, or were the original results in the 2010s the unsustainable thing?

Consider what might be the old normal. Before the pandemic-related bubble earnings (EPS $6.97 in 2021), they made $5.33 in 2019 on $124.60 in sales. Earnings were very typical as a fraction of cash flow that year. Both were good, but not outliers compared to the trend till then. For a sense of scale, today's price is only 10.3 times that old earnings figure, while sales per share are up about 46% since then. If net margins recover even part way, a very good outcome might be expected.

They're doing big buybacks at these low prices, a million shares a month out of ~150 million.

Recent results were good compared to same quarter a year ago. Revenues up 6.1%, retail unit sales up 9%, comparable store-level unit sales up 8.1%, record gross profit per unit, gross profit up 12.8%.

I always liked their business model, so I think that the low-medium-high scenarios are all double digit returns from here in the next few years. (the lowest scenario is always an asteroid-strike zero, of course)

Jim

Nice move so far for KMX.

Any new thoughts on KMX after the earnings release?

Down 22% as I type this; good for a new multi-year low.

Seems to be a bit of an overreaction to me?
Rising loan loss provisions isn't exactly a shocker, given where things seem to be in the business cycle. i.e., early cracks.

Jim

Seems to be a bit of an overreaction to me?
Rising loan loss provisions isn't exactly a shocker, given where things seem to be in the business cycle. i.e., early cracks.



It sure is keeping me humble - I used to have a long position in KMX and short Carvana before I threw in the towel on shorting (except for XLG, the top 50 or the S&P 500) a couple of years ago. Now KMX has a market cap of less than $7b, and CVNA, with half the sales, has a market cap of $44b. I can't say I understand why Carmax has not only increased loan loss provisions, but also has a 6% decline in sales on top of a margin that has shrunk from 2.9% to 1.8%. If this is how they respond to early cracks in the business cycle, how are they going to look when things really start falling apart? Serious question - my impression is that they did fine in recessions like in 2001 and 2008-2009, which is the one thing that might tempt me to try to catch this nasty piece of cutlery.

dtb

having a stake in the well-managed dealer space, used repair&maintenance is relentlessly climbing as % of free cashflow.

i always wondered if CACC has a relevant signal.
CACC is a unique asset-lite car financer where dealers and lower credit buyers suffer jointly on badly assessed loans. it has proved far superior to generic credit scores. CACC doing ok since trump was elected...rather a miracle given how affordability has been crushed.

Seems to be a bit of an overreaction to me?

Maybe a little overreaction, but if they continue with per store retail volumes in the 3100 units a year range, I don't see much upside. I still don't have any concerns about the additional provisions at CAF, they are just executing their push into the lower credit rating loans. The one bright spot is they do seem on track to buy back about 7% of the shares this year. With the drop in price maybe they will get more aggressive.

If they can just find a way to sell 50 to 100 more cars per month at each store all sins will be forgiven. Seems easy enough, ha!

Jeff

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