What happened
Shares of CarMax (KMX -0.91%) were down almost 24% as of 2:11 p.m. ET on Thursday after releasing disappointing revenue and earnings performance. Revenue of $8.1 billion was up 2% over the year-ago quarter but was well below the consensus analyst estimate of $8.5 billion. Earnings per share were $0.79, down from $1.72 a year ago.
It's been a weak year for auto sales, which, along with the negative sentiment across the stock market, has sent CarMax shares down 49% year to date.
So what
Higher average selling prices for used and wholesale vehicles, which increased 9.6% and 17%, respectively, were just barely enough to offset the decline in unit sales. It was a similar story from the previous quarter.
CEO William Nash said, "Macro factors, including vehicle affordability that stem from persistent and broad inflation, climbing interest rates, and low consumer confidence, all led to a marketwide decline in used auto sales."
Data by YCharts
The good news is that CarMax gained market share, which is an important note for investors, given the increased competition from rival Carvana.
Now what
Higher interest rates will make financing the purchase of a new vehicle more expensive and could pressure CarMax's top-line growth for at least a few more quarters.
While the stock currently sells for a cheap price-to-earnings ratio of 12 based on this year's earnings estimate, analysts may start lowering estimates after this quarter's performance, so the forward earnings multiple may not be as cheap as it looks.
CarMax has dealt with many ups and downs in the car industry before, but with interest rates still moving higher, investors shouldn't rush to buy the stock just yet.
