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Why CarMax Stock Rose 10% in August

By Demitri Kalogeropoulos - Sep 9, 2020 at 9:28AM

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Investors gained confidence in the used car retailer's business last month.

What happened

CarMax (KMX -0.30%) shareholders outpaced a booming market in August. The stock rose 10% compared to the S&P 500's 7% increase, according to data provided by S&P Global Market Intelligence.

That boost put the stock back ahead of the market so far in 2020, up about 20%.

A couple shop for a car together.

Image source: Getty Images.

So what

CarMax's last earnings report, in mid-June, contained mostly bad news as sales plummeted due to COVID-19 shutdowns. But investors were happy to learn that the auto retailer achieved steady profitability while cutting its inventory. In the weeks that followed, that optimism was fed by signs of booming demand for used cars, which should power improving results at CarMax and other industry leaders.

Now what

That positive demand environment should support higher pricing and a quick rebound for the broader auto retailing business. In fact, investors are projecting that CarMax's second-quarter sales will only be down 3% compared to the prior quarter's 40% slump.

As for the rest of 2020, look for CEO Bill Nash and his team to highlight their successful efforts to put more of the buying experience online when they announce second-quarter results sometime in late September.

Demitri Kalogeropoulos 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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