By Rob Otman
CarMax (NYSE: KMX) is a $12 billion company today. Investors that bought shares one year ago are sitting on a 26.45% total return. That’s above the S&P 500’s return of 19.96%.
CarMax stock is beating the market, and it reports earnings next week. But does that make it a good buy today? To answer this question, we’ve turned to the Investment U Stock Grader. Our Research Team built this system to diagnose the financial health of a company.
Our system looks at six key metrics…
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✓ Earnings-per-Share (EPS) Growth: CarMax reported a recent EPS growth rate of 13.89%. That’s above the specialty retail industry average of 13.08%. That’s a great sign. CarMax’s earnings growth is outpacing that of its competitors.
✓ Price-to-Earnings (P/E): The average price-to-earnings ratio of the specialty retail industry is 27.39. And CarMax’s ratio comes in at 18.91. It’s trading at a better value than many of its competitors.
✗ Debt-to-Equity: The debt-to-equity ratio for CarMax stock is 391.49. That’s above the specialty retail industry average of 78.13. That’s not a good sign. CarMax’s debt levels should be lower.
✓ Free Cash Flow per Share Growth: CarMax’s FCF has been higher than that of its competitors over the last year. That’s good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth. It’s one of our most important fundamental factors.
✗ Profit Margins: The profit margin of CarMax comes in at 3.77% today. And generally, the higher, the better. We also like to see this margin above that of its competitors. CarMax’s profit margin is below the specialty retail average of 5.63%. So that’s a negative indicator for investors.
✓ Return on Equity: Return on equity gives us a look at the amount of net income returned to shareholders. The ROE for CarMax is 20.85%, and that’s above its industry average ROE of 17.51%.
CarMax stock passes four of our six key metrics today. That’s why our Investment U Stock Grader rates it as a Buy With Caution.
Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That’s why The Oxford Club offers more than a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth. For more details, click here. …read more
Source:: Investment You
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