Stock Analysis & Valuation CarMax, Inc. (0HTQ.L)

• Previous Close: £44.15
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	68.50	55
Intrinsic value (DCF)	26.38	-40
Graham-Dodd Method	42.20	-4
Graham Formula	18.50	-58

Strategic Investment Analysis

Company Overview

CarMax, Inc. (LSE: 0HTQ.L) is a leading U.S. retailer of used vehicles, operating approximately 230 stores nationwide. The company specializes in offering a wide selection of used cars, including domestic, imported, luxury, hybrid, and electric vehicles, catering to diverse customer needs. CarMax operates through two primary segments: CarMax Sales Operations, which focuses on retail and wholesale vehicle sales, and CarMax Auto Finance, providing financing solutions to retail customers. The company differentiates itself through a no-haggle pricing model, transparent customer experience, and certified reconditioning services. As part of the Consumer Cyclical sector and Specialty Retail industry, CarMax benefits from strong brand recognition and a scalable business model. With a market cap of $9.45 billion, CarMax plays a pivotal role in the used car market, leveraging its extensive inventory and financing options to maintain a competitive edge.

Investment Summary

CarMax presents a compelling investment case due to its dominant position in the U.S. used car market, strong brand equity, and scalable business model. However, investors should consider risks such as high total debt ($19.22 billion), sensitivity to economic cycles (beta of 1.449), and reliance on consumer discretionary spending. The company’s revenue of $26.35 billion and net income of $500.56 million in the latest fiscal year indicate robust operational performance, but its lack of dividends may deter income-focused investors. CarMax’s ability to navigate supply chain disruptions and fluctuating used car prices will be critical for future growth.

Competitive Analysis

CarMax holds a competitive advantage through its no-haggle pricing, extensive inventory, and integrated financing solutions via CarMax Auto Finance. Its vertically integrated model allows for better control over vehicle sourcing, reconditioning, and customer financing, enhancing profitability. The company’s scale enables it to leverage economies of scope in procurement and logistics, while its customer-centric approach fosters loyalty. However, competition in the used car market is intense, with both traditional dealerships and digital-first platforms vying for market share. CarMax’s reliance on physical stores may pose a disadvantage compared to purely online competitors, though its omnichannel strategy mitigates this risk. The company’s ability to maintain pricing power and adapt to shifting consumer preferences toward digital transactions will be key to sustaining its leadership position.

Major Competitors

• AutoNation, Inc. (AN): AutoNation is one of the largest automotive retailers in the U.S., offering both new and used vehicles. Its diversified revenue streams, including parts and service, provide stability, but its reliance on new car sales makes it more susceptible to OEM supply constraints. Compared to CarMax, AutoNation has a broader footprint but lacks the same level of specialization in the used car segment.
• Carvana Co. (CVNA): Carvana is a digital-first used car retailer known for its online buying experience and vehicle vending machines. Its asset-light model and rapid growth pose a threat to CarMax’s traditional brick-and-mortar approach. However, Carvana’s recent financial struggles and high debt levels highlight the challenges of scaling an online-only model in this capital-intensive industry.
• Lithia Motors, Inc. (LAD): Lithia Motors operates a network of dealerships across the U.S., with a focus on both new and used vehicles. Its aggressive acquisition strategy has driven growth, but integration risks remain. Unlike CarMax, Lithia’s business is more geographically concentrated, which could limit its resilience to regional economic downturns.
• CarMax, Inc. (KMX): CarMax’s primary U.S.-listed entity competes directly with its LSE-traded counterpart. The company’s scale, brand recognition, and financing arm provide a competitive moat, though its high debt levels and exposure to used car price volatility remain key risks.