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Today's Water-Logged And Getting Wetter Stock: CarMax (KMX)

Stock quotes in this article: KMX

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified CarMax ( KMX) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified CarMax as such a stock due to the following factors:

  • KMX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $57.4 million.
  • KMX has traded 1.8 million shares today.
  • KMX traded in a range 212.5% of the normal price range with a price range of $2.22.
  • KMX traded below its daily resistance level (quality: 38 days, meaning that the stock is crossing a resistance level set by the last 38 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on KMX:

CarMax, Inc., through its subsidiaries, operates as a retailer of used vehicles in the United States. It operates in two segments, CarMax Sales Operations and CarMax Auto Finance. KMX has a PE ratio of 24.7. Currently there are 6 analysts that rate CarMax a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for CarMax has been 1.3 million shares per day over the past 30 days. CarMax has a market cap of $11.7 billion and is part of the services sector and specialty retail industry. The stock has a beta of 1.35 and a short float of 3.6% with 6.07 days to cover. Shares are up 41.3% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates CarMax as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, notable return on equity and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:

  • KMX's revenue growth has slightly outpaced the industry average of 8.3%. Since the same quarter one year prior, revenues rose by 17.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CARMAX INC has improved earnings per share by 29.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CARMAX INC increased its bottom line by earning $1.87 versus $1.79 in the prior year. This year, the market expects an improvement in earnings ($2.27 versus $1.87).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 25.6% when compared to the same quarter one year prior, rising from $111.64 million to $140.27 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, CARMAX INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Powered by its strong earnings growth of 29.16% and other important driving factors, this stock has surged by 44.89% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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