KMX · CarMax
Conviction · Low · more likely to lag the S&P 500 over the next three months
Wrong if: a daily close above $64.22
Note written ·
Price against the kill line
17.1% clear of its kill line on the 13 November 2026 close.
How to read this
This note expects the shares to lag the market, so its kill line sits above the price: a close above the red mark would prove the view wrong. Prices run from low on the left to high on the right. The dot is where the stock closed on 13 November 2026, left of the mark while it is below the line; a dot right of the mark has closed through it.
The scale is stretched near the line, so close calls are easy to see. More than 8% from the line, the stock reads well clear, with a hollow dot to show the figure is off the drawn scale.
The kill line is the research note's own test. The portfolio sells on business facts, not on a price. How the portfolio decides
Three months against the kill line
Daily closes, to . Red: the kill line, a daily close above $64.22, on record since 11 November 2026. The shares are down 9.1% since the close; the S&P 500 is down 2.1% over the same sessions. Figures in the note can cover a different window.
Kill line
A daily close above $64.22, just under the 52-week high of $65.28, which would show the shares leading the S&P 500 again. A report showing retail gross profit per used unit above $2,105 with comparable unit growth above 13.0% would point the same way.
Research onlyNot in the portfolio.
Catalyst
Key figures from the filings · Consumer Discretionary
Quarter to 31 August 2026, filed 30 September 2026; valuation at the 13 November 2026 close
- Revenue, latest quarter ($M)
- 7,878
- Revenue, change on a year (%)
- +19.5
- Gross margin (%)
- 10.1
- Operating margin (%)
- 2.6
- Free cash flow, four quarters ($M)
- 1,146
- Net cash, cash less debt ($M)
- −17,232
- Price to earnings (×)
- 25.8
- Enterprise value to sales (×)
- 0.9
All filed numbers
What CarMax reports to the SEC in its quarterly and annual filings. Each group states its period and filing date once; a figure dated otherwise says so. Built from the filings known on .
| Quarter to | Revenue ($M) | On a year (%) | Gross margin (%) | Operating margin (%) |
|---|---|---|---|---|
| first filed | 7,878 | +19.5 | 10.1 | 2.6 |
| first filed | 8,014 | +6.2 | 10.7 | 3.2 |
| first filed | 5,946 | −1.0 | 10.2 | −2.0 |
| first filed | 5,794 | −6.9 | 10.2 | 1.5 |
| first filed | 6,595 | −6.0 | 10.9 | 1.9 |
| first filed | 7,547 | +6.1 | 11.8 | 3.7 |
| Pre-tax income ($M) | 223 |
| Net income ($M) four quarters: 292 | 165 |
| Diluted shares, change on a year (%) against the quarter to 31 August 2025 | −4.8 |
| Operating cash flow ($M) | 1,599 |
| Capital spending ($M) | 453 |
| Free cash flow ($M) | 1,146 |
| Cash and short-term investments ($M) | 171 |
| Debt ($M) | 17,403 |
| Net cash, cash less debt ($M) | −17,232 |
| Deferred revenue ($M) | Not reported |
| Backlog, orders not yet delivered ($M) | Not reported |
| Receivables ($M) | 225 |
| Inventory ($M) | 3,855 |
| Shareholders' equity ($M) including non-controlling interests | 6,305 |
| Market value ($M) | 7,554 |
| Enterprise value, market value plus net debt ($M) | 24,786 |
| Enterprise value to sales (×) | 0.9 |
| Enterprise value to operating income (×) | 57.5 |
| Price to earnings (×) | 25.8 |
| Price to book value (×) | 1.2 |
| Free-cash-flow yield (%) | 15.2 |
Short interest (FINRA, settled 15 October 2026, published 26 October 2026): 7.0% of shares outstanding sold short, 3.3 days of average trading to cover, −7.5% since the previous report.
| Window | Bought | Sold |
|---|---|---|
| 90 daysfrom | $0 | $0 |
| 12 monthsfrom | $1.3M | $0 |
The thesis
CarMax's 3 November 2026 Shift into GEAR plan holds profit per car flat rather than restoring it, so earnings growth must come from volume, costs and buybacks. The report for the quarter ending 30 November 2026 is the first results test, and the shares look more likely to lag the S&P 500 than lead it over the next three months.
The company targets mid-single-digit compound annual growth in used retail units and mid-teens compound annual growth in adjusted earnings per share (EPS) through fiscal 2030, from fiscal 2026 adjusted EPS of $2.91 (CarMax 8-K, 3 November 2026). Its presentation says retail gross profit per unit is consistent from fiscal 2027, with several hundred dollars per unit of reconditioning and logistics savings reinvested in price.
Morningstar reported a 5.4% fall in the shares on 3 November 2026, the day of the update. The shares closed at $53.89 on 11 November 2026, 17.4% below the 52-week high of $65.28 set on 26 August 2026, and the price is 10.3% lower than three months earlier (adjusted daily closes).
Bullish and bearish views on CarMax Inc.
The bull case on CarMax Inc. (KMX), in brief: volume growth is large and recent. The bear case: profit per car has no planned recovery.
Bull case
- Volume growth is large and recent. Comparable-store used units rose 13.0% and total used units rose 13.8% to 227,391 in the quarter ended 31 August 2026 (CarMax release, 29 September 2026). Revenue grew 19.5% to $7.9 billion.
- Earnings beat by a wide margin. Diluted EPS was $1.16 in that quarter, up 81.3% from $0.64 a year earlier (CarMax release, 29 September 2026), against a $0.73 consensus reported by Daily Political.
- Costs are planned to grow slowly. The 3 November 2026 presentation targets low-single-digit annual growth in selling, general and administrative expense from an adjusted $2,403.6 million in fiscal 2026. It also repeats $200 million of run-rate savings by the end of fiscal 2027.
- Buybacks are due to resume. CarMax said on 29 September 2026 that repurchases would restart in the quarter ending 30 November 2026, with $1.31 billion of authorization remaining. Net leverage was 1.9 times for the twelve months ended 31 August 2026, inside the 1.5 to 2.0 times long-term range in the presentation.
- Wholesale prices are steady. Cox Automotive's official October Manheim index was 206.8, up 0.5% from September and up 2% from a year earlier on a seasonally adjusted basis (Cox, 6 November 2026).
- Some targets sit above the shares. Bank of America upgraded the stock to Buy with a $65 target on 15 October 2026. JPMorgan's target is also $65 at a Neutral rating (Benzinga, 4 November 2026).
Bear case
- Profit per car has no planned recovery. Retail gross profit per used unit was $2,105 in the quarter ended 31 August 2026, down $111 from a year earlier, and wholesale gross profit per unit was $858, down $135 (CarMax release, 29 September 2026). The 3 November 2026 presentation directs savings into price.
- Finance income faces new pressure. The presentation says expansion in the Tier 2 credit segment, targeted at 40% penetration by fiscal 2030 from 10% in Q2 fiscal 2026, pressures CarMax Auto Finance income near term through upfront loss provisions. Mizuho called the reset in finance expectations an incremental headwind (Investing.com, 4 November 2026).
- Target changes after the update were mixed. JPMorgan cut its target to $65 from $70 (Benzinga, 4 November 2026). Mizuho raised its target to $50 from $43 with a Neutral rating, which still sits below the $53.89 close of 11 November 2026.
- Carvana is growing much faster. Carvana reported third-quarter retail units of 217,385, up 39%, on revenue of $8.04 billion, up 42% (Carvana 8-K, 28 October 2026). Its total gross profit per unit fell $365 to $6,997, so its volume gain also came with lower per-unit profit.
- Spending rises before the payoff. The presentation sets capital spending at about $500 million a year starting in fiscal 2028, for locations, technology and artificial intelligence capabilities.
Price setup
The shares closed at $55.14 on 4 November 2026, $52.60 on 5 November 2026 and $51.48 on 6 November 2026, then recovered to $54.11 on 9 November 2026, $54.19 on 10 November 2026 and $53.89 on 11 November 2026. The 3-month reference close was $60.05 on 13 August 2026.
The 50-day moving average was $55.71 and the 200-day moving average was $49.64 as of 11 November 2026, so the last close sits between the two and under the shorter average. The 52-week closing low was $32.11 on 17 November 2025.
The market has priced in a good deal of the turnaround: the shares ran to a 52-week high of $65.28 on 26 August 2026 after the 29 September 2026 beat era's run-up, then gave back ground when the 3 November 2026 update held per-car profit flat. The next test of that price is the quarter ending 30 November 2026, where repurchases are due to restart.
Catalysts ahead
- ~17 November 2026 (est.): Mid-November Manheim Used Vehicle Value Index reading from Cox Automotive. An interim check on wholesale prices and trade-in values, which feed CarMax's wholesale and retail margins in the quarter ending 30 November 2026.
- 7 December 2026: Cox Automotive's next full monthly Manheim index release, for November. Shows whether wholesale used-vehicle prices held after October's official 206.8 reading.
- ~18 December 2026 (est.): CarMax Q3 FY2027 report for the quarter ending 30 November 2026; date not yet announced. The first results test of the plan: whether unit growth continues, whether retail profit per car stays at or above $2,105, and whether repurchases restarted.
What would change the view
A daily close above $64.22, just under the 52-week high of $65.28, which would show the shares leading the S&P 500 again. A report showing retail gross profit per used unit above $2,105 with comparable unit growth above 13.0% would point the same way.
What it trades with
The shares carry a beta of 1.22 (Daily Political, 4 November 2026), a measure of how much they have moved relative to the broad market. They respond to used-vehicle prices through the Manheim index, which Cox Automotive put at 206.8 for October 2026, and to auto loan rates.
Carvana is the closest listed comparison, and its results read directly on industry unit share and per-unit profit. CarMax Auto Finance adds consumer-credit exposure, so loan-loss provisions and funding spreads can move reported earnings apart from retail operations.
The evidence, claim by claim (8)
- CarMax targets mid-single-digit compound annual growth in used retail units and mid-teens compound annual growth in adjusted EPS through fiscal 2030, from fiscal 2026 adjusted EPS of $2.91. CarMax 8-K strategic update, 3 November 2026 · as of
- The strategic update presentation says retail gross profit per unit is consistent from fiscal 2027, with several hundred dollars per unit of reconditioning and logistics savings reinvested in price. CarMax 8-K strategic update presentation · as of
- Q2 FY2027 diluted EPS was $1.16, up 81.3% year over year; revenue $7.9 billion, up 19.5%; comparable-store used unit sales up 13.0%. CarMax Q2 FY2027 results release · as of
- Retail gross profit per used unit was $2,105, down $111 year over year; wholesale gross profit per unit was $858, down $135. CarMax Q2 FY2027 results release · as of
- Tier 2 credit expansion, targeted at 40% penetration by fiscal 2030 from 10% in Q2 fiscal 2026, pressures CarMax Auto Finance income near term through upfront loss provisions, according to the company. CarMax 8-K strategic update presentation · as of
- JPMorgan kept a Neutral rating and lowered its price target to $65; Mizuho raised its target to $50 from $43 and kept a Neutral rating. Benzinga; Investing.com, 4 November 2026 · as of
- Carvana reported third-quarter retail units of 217,385, up 39%, revenue of $8.04 billion, up 42%, and total gross profit per unit of $6,997, down $365. Carvana 8-K, Q3 2026 results · as of
- The official October 2026 Manheim Used Vehicle Value Index was 206.8, up 0.5% from September and up 2% from a year earlier (seasonally adjusted); non-adjusted prices fell 2.3% from September. Cox Automotive, October 2026 Manheim index, published 6 November 2026 · as of
Sources
- October 2026 Manheim Used Vehicle Value Index · coxautoinc.com ·
- CARMAX INC - Form 8-K - FY2026 · sec.gov ·
- SEC EDGAR
- CarMax Reports Second Quarter Fiscal 2027 Results · secure.businesswire.com ·
- Mizuho raises CarMax stock price target on strategic update · investing.com
- CarMax (KMX) · dailypolitical.com ·
- CARVANA CO. - Form 8-K - FY2026 · sec.gov
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