CarMax Inches Forward

• Email
• Share
• Print

Beware the disappointment of analysts. Shares of nationwide used-car chain CarMax (NYSE: KMX) dropped more than 4% this morning after its fourth-quarter and year-end earnings release and forward guidance didn't meet the Street's expectations.

Before you step on the gas and rush for the exits, remember that the numbers still constituted record results for the firm, built on solid sales increases reported earlier in the month. Given the ups and downs the firm has weathered through this fiscal year, things look decent.

Earnings per share for the fourth quarter rose 17% to reach $0.21 -- with a penny owed to a one-time benefit. For the full year, earnings came in 21% higher than last year, at $1.10 per share. Excluding special items for both years, the earnings bump was only 11%.

The year's revenue numbers don't paint a picture of used cars flying off the lots, but that's probably to be expected when Ford Motor (NYSE: F), General Motors (NYSE: GM), and DaimlerChrysler (NYSE: DCX) were offering such insanely low financing on the new cars that Americans love so much. Still, full-year sales were up 16% overall, to nearly $4.6 billion.

While those numbers are solid enough, CarMax's current valuation should concern investors. At $28 per share, the firm trades at 25 times trailing earnings, and management's full-year growth outlook aims for EPS growth of only 10% to 15%. That looks a bit rich for a big, free cash flow-negative firm that is still depending on some expensive expansion plans.

Thinking of splurging on some new wheels? Discuss your car lust on the Fool's Buying and Maintaining A Car discussion board.

Fool contributor Seth Jayson thinks a car belongs in the garage and people belong on bicycles. He has no stake in any company mentioned above. View his Fool profile here.