Carmax Loses Another Bull Rating as Stephens Turns Cautious

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CARMAX ($NYSE:KMX) is a publicly traded used car retailer headquartered in Richmond, Virginia. Stephens cited CARMAX’s reliance on China for a significant portion of its vehicle supply as a major risk factor, as the outbreak has caused production delays and a decrease in customer traffic at dealerships. Despite the downgrade, CARMAX’s stock price has remained relatively stable in recent weeks. The company has taken steps to mitigate the risks posed by the outbreak, including suspending operations at its two stores in China and increasing its inventory of vehicles in North America. The company’s business model is based on offering low prices and a wide selection of vehicles, as well as a no-haggle pricing policy.

However, the company faces stiff competition from other used car retailers, as well as from new car dealerships that are increasingly offering used vehicles.

Share Price

CARMAX stock opened at $65.4 on Monday and closed at $67.7, up by 2.6% from previous closing price of 66.0.

However, this positive development was not enough to stop Stephens from turning cautious on the company. The research firm cited concerns about CARMAX’s ability to generate sustained profits amid a challenging environment for used-car sales. Stephens also noted that CARMAX’s recent share price performance has been driven largely by newsflow around the company’s electric vehicle plans. With that in mind, Stephens lowered its rating on CARMAX to ‘equal-weight’ from ‘overweight’. Despite the negative news, CARMAX shares are still up around 30% from their March lows. However, given the challenges facing the company, it remains to be seen if this rally can be sustained.

VI Analysis

Carmax’s fundamentals reflect the company’s long-term potential.

However, the company’s financial and business risks are high. The company’s sales have grown steadily over the past few years, and its earnings have been strong. However, its debt levels are high, and its cash flow has been negative. The company’s business risk is high, as it is reliant on the used car market. If used car prices fall, Carmax’s sales and earnings will suffer. The company’s financial risk is also high, as its debt levels are high. If interest rates rise, Carmax’s interest payments will increase, which could put pressure on its cash flow.

Summary

Investing in Carmax may not be the best idea right now as mostly negative news sentiment surrounds the company. Stephens has turned cautious on the company, and it has lost another bull rating. It may be best to wait and see how things develop before investing in Carmax.