Why Shares of CarMax Inc. Sped Higher

Is this meaningful? Or just another movement?

Jun 20, 2014 at 7:43PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of CarMax Inc (NYSE:KMX) were shifting into higher gear today, gaining as much as 19% and finish up 17%, after delivering a blockbuster first quarter earnings report.

So what: The car dealership chain sped past expectations as sales increased 13.3% to $3.75 billion, toping estimates of $3.58 billion. Bottom-line performance was even stronger as per-share profits improved 18% to $0.76, beating the consensus at $0.67. Comparable sales improved 3.4% in the quarter, and every key sales category improved as well with used vehicle sales increasing 9.8%. CEO Tom Folliard said the company had "another great quarter" and noted strong growth in its retail and wholesale divisions.

Now what: With the labor market picking up and the economic recovery accelerating, car sales are only likely to improve, a further boon for CarMax. The company did not provide guidance, but it continues to open new stores, with four new ones last quarter and has also been buying back shares. Those moves should help boost growth on the top and bottom lines as per-share profit gets a lift form fewer shares outstanding. Given all of those factors, I'd expect shares to continue moving higher.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of CarMax and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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