CarMax’s Bumpy Ride: Earnings Slide, Stock Tumbles

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CarMax (KMX) had a bit of a rough Thursday, dropping 19.7% by 2:15 p.m. ET. It wasn’t the kind of crash you might see on the streets-a total wreck-but it sure felt like one for investors. The company’s second-quarter earnings, ending August 31, were a far cry from what analysts had hoped for. Instead of the anticipated $1.03 per share on $7 billion in sales, CarMax reported a mere $0.64 per share and a disappointing $6.6 billion in revenue. It was as if they’d rolled into the office that morning, expecting a smooth ride, and instead, their car got stuck in the mud.

Now, I know a thing or two about the thrill of a stock that seems like it’s going places, only to skid out of control. Analysts were optimistic-perhaps a little too optimistic-before the report. The used car market was supposed to be booming, with strong demand for everything from hatchbacks to SUVs. But, much like my last attempt at making a soufflé, things just didn’t rise as expected.

CarMax Q2 earnings

Here’s where it gets interesting, or at least it should be for anyone with a vested interest in this stock. Year-over-year sales sank 6%, a bigger dip than the company had forecast. This, according to CarMax, reflects weaker customer demand and the unfortunate reality of lower prices. Wholesale sales only dropped 2.2%, which could be a sign that CarMax was pushing more budget-friendly cars to wholesale buyers instead of making those coveted, high-margin retail sales. It’s like the difference between picking up a decent bottle of wine at the store and opting for the $3.99 special on the bottom shelf.

The real kicker, though, is that CarMax didn’t just sit there in shock after this reality check-they bought 2.4% fewer cars for resale. If that’s not an indicator that CarMax is seeing the market trend shift, I don’t know what is. Fewer cars on the lot equals fewer opportunities to turn a profit, which is always a bad sign. And in case anyone missed it, profits plunged 25% year-over-year. That’s no small drop. Think of it as slipping on ice, except the ice is made of financial projections that were way too rosy.

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Is CarMax stock a buy?

CEO Bill Nash, ever the optimist, acknowledged that Q2 had been “challenging.” That’s one way of putting it. Still, he’s holding on to his faith in the long-term strategy and, in what can only be described as the financial equivalent of telling the nervous passenger that “everything will be fine,” he’s decided to cut costs by $150 million over the next 18 months. If he was a little more self-aware, he might have added, “But I’ll be honest, I’m not sure how this is going to play out.” Sometimes optimism feels like a very nice coat over a very cold wind.

Let’s talk numbers for a moment. CarMax, at $6.9 billion in market cap and a trailing profit of $521 million, doesn’t seem like it’s overpriced. The stock is trading at just 13.2 times earnings, which, if you believe analysts, could still offer value considering the 16% long-term growth forecast. That’s the kind of promise that makes me sit up and take notice, like when someone says there’s dessert left at the party. But here’s the issue: analysts missed the mark-completely. They were blindsided by a 25% drop in earnings, which makes me wonder whether their long-term projections are based on wishful thinking rather than anything resembling reality.

So, what’s the takeaway here? Despite the seemingly low price and the optimistic growth forecasts, if CarMax continues to stumble through earnings reports like a teenager at their first job, it might be time to reconsider whether it’s worth keeping on the watchlist. As much as I like a good bargain, even I know that sometimes a cheap stock is cheap for a reason.

But hey, who knows? I’ve been wrong before. Like the time I thought I could fix a leaky faucet with a YouTube video and a prayer. Maybe, just maybe, CarMax will turn things around. Until then, it’s a stock that feels like a car ride you’d rather not be on right now. 🚗

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2025-09-25 23:49