CarMax (KMX) Marked As A Barbarian At The Gate

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 $108.6 million.
  • KMX has traded 326,110 shares today.
  • KMX traded in a range 207% of the normal price range with a price range of $1.36.
  • KMX traded above its daily resistance level (quality: 30 days, meaning that the stock is crossing a resistance level set by the last 30 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 20.6. 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 1.8 million shares per day over the past 30 days. CarMax has a market cap of $10.1 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 3.4% with 3.15 days to cover. Shares are down 4.1% year-to-date as of the close of trading on Friday.

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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, growth in earnings per share, notable return on equity, increase in stock price during the past year and increase in net income. 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 7.3%. Since the same quarter one year prior, revenues rose by 12.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CARMAX INC has improved earnings per share by 14.6% 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 ($2.26 versus $1.87).
  • 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 has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Specialty Retail industry average. The net income increased by 12.4% when compared to the same quarter one year prior, going from $94.68 million to $106.45 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
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