CarMax: A Calculated Risk, or Mere Sentiment?

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It is, as always, a matter of discernment. While the herd panics at the sight of a declining stock price, a true investor observes the underlying value – or, more precisely, the potential for value. BML Capital Management, it seems, possesses a similar inclination. They have, with a boldness bordering on the admirable, acquired a stake in CarMax, purchasing 155,000 shares. A mere $6 million, one might say – a trifle, really, in the grand theatre of finance. But then, it is not the size of the wager, but the wit with which it is placed that truly matters.

A Curious Case

The filing with the SEC reveals a new position, a rather substantial one, comprising 5.18% of BML’s reported assets. To devote such a portion to a retailer of pre-owned automobiles is… unexpected. One typically expects such funds to chase the ephemeral dreams of biotech startups, not the solid, if somewhat dusty, reality of used car lots. It suggests a conviction, a belief that the market has miscalculated, that CarMax, despite its recent misfortunes, is not destined for the scrap heap.

Their portfolio, as it stands, is a study in contrasts: ACRS, AVIR, ORMP, TIL, PMVP – a collection of hopeful ventures. CarMax, in this company, is a rather singular specimen – a business that actually earns a profit. A delightful anomaly, wouldn’t you agree?

Currently, the shares trade at $44.78 – a precipitous fall of 46.84% over the past year. The S&P 500, meanwhile, has been enjoying a rather vulgar display of prosperity. But numbers, dear reader, are often deceiving. They tell you what happened, not why. And the ‘why’ is always the more interesting question.

The Company Itself

CarMax, for those unfamiliar with its operations, is a purveyor of pre-owned vehicles. They offer a wide selection, from the commonplace to the extravagant, and provide financing options to facilitate the acquisition. A rather straightforward business, really. They also operate an integrated wholesale model, which, while not glamorous, is undeniably efficient. Their revenue for the trailing twelve months stands at $25.94 billion, with a net income of $457.84 million. A respectable performance, even in these turbulent times. Their market capitalization, at $6.58 billion, suggests a degree of undervaluation, at least to discerning eyes.

A Calculated Gamble

BML’s allocation to CarMax is not merely a dabbling in the retail sector; it is a statement. A 5% stake suggests a belief in the company’s long-term viability, a conviction that the current market pessimism is unwarranted. One might even say it’s a rather elegant act of contrarianism.

However, the situation is not without its challenges. Recent quarterly results reveal a decline in retail unit sales – down 8% year over year – and a corresponding decrease in comparable sales. Earnings per share have also suffered, falling from $0.81 to $0.43. Gross profit per unit remains modest, while wholesale margins have been impacted by depreciating vehicle prices. The market, naturally, has reacted with predictable hysteria.

Yet, CarMax continues to generate substantial cash flow, with $590 million in gross profit and $174.7 million in income from its auto finance arm. Management is also committed to cost savings, targeting at least $150 million by fiscal 2027, and is actively repurchasing shares – a rather sensible course of action, given the current valuation. They repurchased $201.6 million of stock in the last quarter alone. It seems they believe, as we do, that the market has overreacted.

To conclude, CarMax is not without its flaws. But in a world obsessed with novelty and fleeting trends, a solid, cash-generative business is a rare and valuable commodity. BML Capital, it appears, recognizes this. They have taken a risk, certainly. But as any true investor knows, it is not the avoidance of risk, but the intelligent assessment of it, that separates the successful from the merely fortunate.

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2026-02-03 18:03