CarMax Inc.KMX

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

Although CarMax is temporarily slowing store growth, we believe management will eventually go back to adding stores at a 15% annual growth rate. We believe this goal is quite realistic, given the size of the market and the fact that the company could Read more

Bulls Say

CarMax has increased revenue and profitability during the past five years at a remarkable rate. Much of the near-term slowdown is because of current macroeconomic conditions, but CarMax is still positioned to gain market share in any environment.

With long-term plans to add stores in new and existing markets at a 15% annual rate in a highly fragmented industry, CarMax has excellent growth prospects for new and comparable-store revenue once industry sales improve.

No competitors have successfully duplicated CarMax's business model, providing the company with a considerable head start on would-be imitators.

The company has the liquidity to finance future growth.

The company has about 100 stores in more than 40% of the U.S. and has the largest market share in the country for late-model used vehicles, at about 2%. Read more

Bears Say

CarMax operates in a cyclical industry. Fiscal 2009 results show that consumers are delaying big-ticket auto purchases until the economy improves.

The company has suspended store opening plans because of weakening demand.

The repeat business that management expects from the three- to five-year vehicle purchasing cycle is not a sure thing.

Theoretically, nothing prevents a competitor from copying CarMax's business model.

Generous discounting of new vehicles by automakers could hurt demand for used vehicles. Read more

Strategy

After spending several years perfecting its retail concept and improving profits at existing stores, CarMax resumed opening new locations in late 2002 and plans to increase its store base by 15% annually Read more

Management

Tom Folliard, 44, became CEO and president in 2006 after Austin Ligon, who was part of the team that conceived CarMax, retired. Folliard has been with CarMax since its inception as a unit of Circuit City Stores in 1993 and held various roles in sales, Read more

Profile

CarMax sells, finances, and services used and new cars through a chain of about 100 retail stores. It was formed in 1993 as a unit of Circuit City and was spun off into Read more

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