Why America's Car-Mart Stock Was Down This Week

What happened

Week to date, shares of America's Car-Mart (CRMT 2.03%) were down 17% at 2:34 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.

The used car store chain reported strong sales results for the fiscal first quarter ending July 31. The company also announced a new CEO, but what sent the stock down was a jump in the provision for credit losses. As a result, Car-Mart reported just $0.63 in earnings per share, down from $2.07 in the year-ago quarter.

So what

America's Car-Mart is operating in a weak environment for car sales, but it was impressive to see the company report strength across several key metrics. Customers are finding value at the company's dealerships, as retail unit sales grew 2.4%, which drove same-store sales up 8.2% year over year. 

Moreover, gross profit per car sold increased to $6,768 from $6,524 in the year-ago quarter. Selling, general, and administrative expenses were held in check at 14.9% of revenue.

While good margin performance would have boosted earnings per share, unfavorable factors such as higher interest rates and longer contract terms caused management to raise its provision for loan losses that hurt the bottom line.

However, this is not a problem that negatively impacts the long-term health of the business. Higher provisions for losses will occasionally happen when there are sudden changes that impact the credit market. But these headwinds to earnings growth will eventually become tailwinds, which could make the sell-off a good buying opportunity.

Now what

The company announced that Doug Campbell, who joined the company last year, will be the next CEO, taking over for Jeff Williams. Campbell has extensive experience working in the auto industry, including leading the growth of Avis Budget Group's direct-to-consumer business.

The lack of affordable vehicles is keeping many customers from shopping for a new car right now. But this could be the right time to buy the stock, considering the stock's price-to-sales ratio is near its lowest level in 10 years.