CarMax has gotten torched over the last six months - since February 2025, its stock price has dropped 34.8% to $58.14 per share. This may have investors wondering how to approach the situation.
Is now the time to buy CarMax, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think CarMax Will Underperform?
Despite the more favorable entry price, we don't have much confidence in CarMax. Here are three reasons why you should be careful with KMX and a stock we'd rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
CarMax’s demand has been shrinking over the last two years as its same-store sales have averaged 2% annual declines.
2. Low Gross Margin Reveals Weak Structural Profitability
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
CarMax has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 10.8% gross margin over the last two years. Said differently, CarMax had to pay a chunky $89.22 to its suppliers for every $100 in revenue.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of CarMax, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 14.8× forward P/E (or $58.14 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Like More Than CarMax
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
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