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Barbarian At The Gate: CarMax (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 "barbarian at the gate" (strong stocks crossing above resistance 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 $59.1 million.
  • KMX has traded 219,075 shares today.
  • KMX traded in a range 209.4% of the normal price range with a price range of $1.75.
  • KMX traded above its daily resistance level (quality: 7 days, meaning that the stock is crossing a resistance level set by the last 7 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' 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 positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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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 22.0. Currently there are 8 analysts that rate CarMax a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for CarMax has been 1.7 million shares per day over the past 30 days. CarMax has a market cap of $11.0 billion and is part of the services sector and specialty retail industry. The stock has a beta of 1.46 and a short float of 6.1% with 10.72 days to cover. Shares are up 3.8% 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 revenue growth, impressive record of earnings per share growth, increase in net income, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 0.6%. Since the same quarter one year prior, revenues rose by 13.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CARMAX INC has improved earnings per share by 18.8% 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 $2.17 versus $1.87 in the prior year. This year, the market expects an improvement in earnings ($2.56 versus $2.17).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Specialty Retail industry average. The net income increased by 15.7% when compared to the same quarter one year prior, going from $146.65 million to $169.65 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.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.

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