NEW YORK (TheStreet) -- Inclement weather wasn't enough to keep consumers off car lots, and ordinarily, this would bode well for automobile retailer CarMax Group (KMX) - Get Report, whose shares are trading at near all-time highs, but that isn't the case.
Led by higher sales for trucks and sport-utility vehicles, February auto sales continued to climb, but even as auto sales are expected to increase, there are better opportunities out there than CarMax.
According to data provided by DealerTrack Technologies (TRAK) , which makes software used by auto dealers, there was a 14% jump in its February traffic, suggesting higher engagement among consumers looking for vehicles.
But to what extent can Richmond, Va.-based CarMax benefit from this trend? Ahead of the company's fourth-quarter and full-year earnings results Thursday, there are two questions that must be answered: When will the stock respond, and is the projected growth in auto sales already priced in to its shares?
Consider that, though the shares, which closed Friday at $66.69, are less than 3% away from CarMax's all-time high of $68.71, reached on Dec. 22, the stock has traded flat so far this year. In addition, the shares are down 1.36% for the past three months.
And this is even though fellow car dealer stocks such as Asbury Automotive Group (ABG) - Get Report and AutoNation (AN) - Get Report recently topped Wall Street earnings estimates in February, presumably, on the back of strong auto sales.
During that span, auto sales have remained robust, reaching a seasonally adjusted annual rate of 16.23 million vehicles in February, according to research firm Autodata Solutions.
February sales were led by automakers such as Toyota (TM) - Get Report and General Motors (GM) - Get Report, whose sales during the month climbed 13% and 4.2% respectively. This followed industrywide sales in January where SAAR reached 16.66 million cars sold.
Assuming DealerTrack's 14% jump in traffic last month translate to actual auto sales, the SAAR results for March and April may also be strong.
But analysts at Robert W. Baird aren't impressed. On March 4, Baird downgraded CarMax shares to neutral from outperform with a $70 price target, which suggests just 5% gains from current levels of about $66.
For the fiscal fourth quarter ended Feb. 28, earnings are projected to have climbed 15% year over year to 60 cents a share on a 14% jump in revenue, reaching $3.5 billion, topping last year's mark of $3 billion. For the full year, earnings are projected to come in at $2.60 a share, up 16% from a year earlier, while revenue is projected to have climbed 13.5% to $14.27 billion.
With CarMax's shares trading at near all-time highs and its price-to-earnings ratio of 27 almost 7 points higher than the average S&P 500 stock, investors would do well to consider faster-growing opportunities, as the implication is that CarMax isn't expected to benefit from rising auto sales.
Although its average analyst 12-month price target of $69.50 implies 4% gains from current levels, it also appears that CarMax's shares have driven as far as they can go for now.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.