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Why CarMax Stock Jumped 10% in January

By John Ballard – Feb 6, 2020 at 12:52PM

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The largest used car retailer is riding a healthy car-buying environment.

What happened

Shares of CarMax (KMX 6.49%) gained 10.7% in value last month, according to data provided by S&P Global Market Intelligence.

Investors are optimistic about CarMax heading into 2020, especially after a positive consumer spending report in January that may point to further sales of used cars. 

A salesperson handing the keys to a customer's new car in the parking lot of a CarMax store.

Image source: CarMax.  

So what

As new car prices trend higher, the value proposition favors continued strong sales of used vehicles, which are taking share of the market. CarMax's fiscal third-quarter earnings report showed double-digit growth in revenue, driven by an 11% increase in used unit sales. 

Now what

The latest results come as CarMax is launching a new-car buying experience at select stores around the country where a customer can purchase a new car from home and have it delivered. "This is the future of car buying," CEO Bill Nash said earlier in January. "This experience has been well-received by our customers who are excited about buying a car on their own terms." 

The strong growth reported in the fiscal third quarter should also encourage investors who may be concerned about competition from rival Carvana that is also doing its part to make the car-buying experience less painful. 

Most analysts are bullish on CarMax's growth prospects. The consensus analyst estimate has CarMax growing earnings by 12% annually over the next five years.

John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends CarMax. The Motley Fool has a disclosure policy.

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