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Why CarMax Stock Gained 11% in March

By Demitri Kalogeropoulos - Apr 5, 2021 at 9:27AM

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Car sales are being lifted by federal stimulus checks.

What happened

CarMax (KMX 1.09%) shareholders beat a rallying market last month. Their stock rose 11% in March compared to a 4.2% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally added to significant gains for the used car retailer, with shares up over 30% so far in 2021.

A couple wearing masks receives car keys from another person.

Image source: Getty Images.

So what

Plunging COVID-19 case rates combined with encouraging economic news to brighten investors' outlook for CarMax's business last month. But the main factor pulling shares higher was expectations for a strong earnings report in early April. Federal stimulus efforts put more cash into consumers' pockets, and that usually means good things for the nation's leading used car retailer.

Now what

CarMax said in early April that sales indeed were lifted by the second round of stimulus payments. However, those gains were offset by severe winter weather in February. The chain also endured inventory challenges related to COVID-19 that kept a lid on revenue growth. Overall, automotive sales volumes were essentially flat in the fourth quarter.

That growth figure should improve as CarMax works through its inventory problems and as warmer weather makes its lots more accessible this spring. Meanwhile, management is continuing its bid to make the car buying process e-commerce friendly by acquiring the Edmunds research platform.

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