What Every CarMax Investor Should Know Before Buying

Core Viewpoint - CarMax is facing significant challenges as it prepares for its upcoming earnings report, with a stock price decline of over 50% year-to-date and a 75% drop from its all-time high in November 2021, marking one of the deepest slumps among major specialty retailers [1][2]. Group 1: Company Performance - CarMax's market capitalization is currently $5.5 billion, making it the second-smallest stock in the Consumer Discretionary Sector SPDR Fund, which has been one of the worst-performing sectors this year [2]. - The company is operating under an interim CEO and interim executive chairman after the removal of former CEO Bill Nash, with upcoming Q3 results expected to reset expectations for the largest used car retailer in the U.S. [3]. Group 2: Market Conditions - The average price of used cars remains close to $26,000, leading customers to opt for older, higher-mileage vehicles, while interest rates are still high, with an average of 11.2% reported in Q2, impacting affordability and wholesale transactions [5]. - Despite these pressures, CarMax's shares are at historically low valuations, with price-to-earnings at 11.2, price-to-sales at 0.2, and price-to-book at 0.9, the lowest in the past 20 years [6]. Group 3: Leadership Changes - The board's decision to remove the long-tenured CEO highlights the urgency of the situation, with interim leaders tasked with stabilizing the business and adapting to changing consumer preferences [7]. - The board believes that increased involvement from interim leaders will strengthen the business during this transitional period, focusing on driving sales, enhancing profitability, and reducing costs [8]. Group 4: Future Outlook - CarMax is positioned as a deep-value turnaround story amid a challenging affordability cycle and leadership changes, with potential for rebound if pricing normalizes and interest rates decrease [9].