Intrinsic Value CarMax, Inc. (0HTQ.L)

• Previous Close: £44.15
• Intrinsic Value: £26.38
• Upside potential: -40%

Stock Valuation Context

Business Model And Market Position

CarMax, Inc. is a leading retailer of used vehicles in the United States, operating through its CarMax Sales Operations and CarMax Auto Finance segments. The company differentiates itself by offering a wide selection of used vehicles, including domestic, imported, luxury, hybrid, and electric models, alongside extended protection plans and financing solutions. CarMax's no-haggle pricing strategy and customer-centric approach have solidified its reputation in the highly fragmented used car market. With approximately 230 stores nationwide, the company leverages its scale to maintain competitive pricing and operational efficiency. Its wholesale auctions for older, high-mileage vehicles further diversify revenue streams. CarMax Auto Finance provides in-house financing options, enhancing customer retention and profitability. The company's focus on reconditioning and vehicle repair services ensures quality control, reinforcing trust among buyers. Despite competition from traditional dealerships and online platforms, CarMax's integrated model and strong brand recognition position it as a dominant player in the specialty retail sector.

Revenue Profitability And Efficiency

CarMax reported revenue of $26.35 billion for the fiscal year ending February 2025, with net income of $500.56 million, reflecting a net margin of approximately 1.9%. The company generated $624.44 million in operating cash flow, though capital expenditures of $467.94 million indicate significant reinvestment in operations. Diluted EPS stood at $3.21, demonstrating modest profitability in a competitive market.

Earnings Power And Capital Efficiency

The company's earnings power is supported by its dual revenue streams from vehicle sales and financing operations. CarMax Auto Finance contributes to interest income, while the retail segment drives volume. However, the high total debt of $19.22 billion suggests leveraged operations, which may impact capital efficiency. The absence of dividends allows for reinvestment but limits shareholder returns.

Balance Sheet And Financial Health

CarMax's balance sheet shows $0 in cash and equivalents, raising liquidity concerns, though this may reflect aggressive working capital management. Total debt of $19.22 billion underscores a leveraged position, which could constrain financial flexibility. The company's ability to service this debt will depend on sustained cash flow generation and market conditions.

Growth Trends And Dividend Policy

CarMax's growth is tied to the used vehicle market, which faces cyclical demand. The company does not pay dividends, opting to reinvest earnings into store expansion and operational enhancements. Wholesale auctions and financing services provide additional growth levers, though macroeconomic factors like interest rates and consumer sentiment remain key risks.

Valuation And Market Expectations

With a market capitalization of $9.45 billion and a beta of 1.449, CarMax is viewed as a higher-risk investment sensitive to economic cycles. The lack of dividends may deter income-focused investors, but growth potential in the used car market could appeal to those betting on long-term expansion.

Strategic Advantages And Outlook

CarMax's integrated retail and financing model, combined with its no-haggle pricing and extensive store network, provides a competitive edge. However, rising interest rates and economic uncertainty could pressure margins. The company's focus on digital transformation and customer experience may mitigate these risks, positioning it for resilience in a volatile market.

Sources

Company filings, market data