Here we go again. It's the same old story of a company reporting impressive, even record-setting, results, only to watch its stock price plummet on the news.
The victim is Inside Value selection CarMax (NYSE:KMX), which reported fourth-quarter and fiscal 2007 results that sparkled. Yet its stock price fell nearly 9% yesterday. As can be the case with a used car, what shines on the outside may be covering up damage just below the surface. However, in this case, the only damage appears to be the company's failure to match the Street's elevated expectations.
You can read the full results here, but let's look at some highlights. For the fourth quarter, CarMax reported earnings of $42.1 million, or $0.19 per share, which is an increase of 15% over last year's results. For the year, earnings totaled $198.6 million, or $0.92 per share -- a jump of 48%. Although it's not as impressive considering the year-ago performance was negative, CarMax did increase quarterly comps by 11% on a per-unit basis. For the fiscal year, unit comps were up 8% on top of last year's 4% growth.
Unfortunately for CarMax, as solid as its results were, they didn't quite match what analysts were expecting. That's quite a change of pace from the company's recent history of easily surpassing expectations. As fellow Fool Rich Smith pointed out a couple days ago, CarMax has blown away guesstimates for several quarters, so when it comes up just short, it suffers that much more as a result.
Also contributing to CarMax's skid was the fact that its estimates for fiscal 2008 didn't blow anybody away. The company expects to earn $1.03 to $1.14 per share for the year. That would be an increase in the range of 12% to 24%, while analysts predicted earnings per share of $1.07. Again, the fact that the projections were received negatively is simply the result of CarMax performing so strongly for so many quarters. Investors have come to expect more from the company. Excluding that, I think you would agree that 12% to 24% growth would please nearly any investor.
So what's next for CarMax? The company is taking the bold steps of expanding; it plans to open 13 used car superstores in the fiscal year. It will also be entering five new markets.
Although CarMax has some competitors in the segment, including America's Car-Mart (NASDAQ:CRMT) and AutoNation (NYSE:AN), it is, by far, the leader of the pack. Considering its grip on the used car market, its continued strong performance (regardless of expectations), and its recent tumble, I don't think long-term investors should hesitate to shop for CarMax.
To see the road that led CarMax to raise expectations so high that it was bound to crash, read:
CarMax is a Motley Fool Inside Value selection. If you're a value investor, lead analyst Philip Durell has some great recommendations for you. For a free 30-day trial, simply click here to sign up today.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article. The Fool has a disclosure policy.
