CarMax (KMX) has spent years building itself into America’s largest used car dealership, with dozens of locations, nationwide reach, and a brand that is instantly recognized by many car buyers. But lately, the company has looked like it’s stuck in traffic. Declining demand, pricing pressure, and increased competition have dampened momentum, sending KMX stock down and leaving investors wondering how the industry leader lost control of the wheel.
That’s where activist investor Starboard Value entered the picture.
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Led by billionaire investor Jeff Smith, Starboard recently revealed a new 6.2 million share position in CarMax worth about $258 million, after first disclosing its stake in the company in March. This was not a random trade. The hedge fund was already seeking changes behind the scenes, even appointing two directors to CarMax’s board.
Starboard Value believes CarMax still has a winning foundation, but management needs to move quickly. The activist investment firm sees an opportunity to tighten costs, modernize pricing systems, and improve CarMax’s online shopping process as more shoppers compare deals digitally. Starboard believes that smart real-time pricing and lean operations can help CarMax regain market share and restore growth momentum.
With KMX trading near a long-term low and nearly cut in half from its 52-week high, investors are wondering if CarMax could be a tough play to turn again. So, should investors start buying into the activist comeback story, or sit on the sidelines for a while? Let’s take a closer look.
About CarMax Stock
Founded in 1993 and based in Richmond, Virginia, CarMax has grown to become one of America’s biggest names in used car sales. The company sells everything from everyday cars to luxury, hybrid, and electric vehicles through its national network. In addition to car sales, CarMax also conducts financing activities through CarMax Auto Finance, helping customers of all different credit profiles secure loans.
The company also offers auctions, repair services, and maintenance programs, creating a comprehensive environmental program for the used car business. CarMax currently has a market capitalization of approximately $5.14 billion.
Shares of the used car chain are stuck in a prolonged decline, reflecting the current difficulty of the auto market. KMX fell to a 52-week low of $30.26 in November before staging a modest rebound. Even after rising 23.7% from that low, the stock is still down 44% over the past year. And since hitting a high of $71.99 last July, shares have been roughly cut in half.
However, the chart is starting to show the first few signs that the selling pressure may be easing. The 14-day RSI cooled to 43.77 after briefly approaching overbought territory in April, suggesting the stock has pulled back enough to ease some more intense buying pressure. Although KMX is not yet in oversold territory, current readings indicate that momentum has weakened significantly, and the recent selloff may be starting to stabilize.
Meanwhile, the MACD indicator is flashing an early bullish signal. The MACD line has recently crossed above the signal line, while the histogram has returned to positive territory, and that is often seen as a sign that momentum may be reversing slightly back in favor of buyers.
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Performance-wise, CarMax presents a mixed picture. KMX trades at about 16.11 times forward adjusted earnings, still slightly above industry peers, suggesting investors continue to value the product’s scale and strength. But its forward price-to-sales ratio of 0.20 times remains below both the industry average and the stock’s historical median.
A Closer Look at CarMax’s Q4 Report
CarMax’s Q4 2026 earnings report, released on April 14, looked like one of those places where the headline numbers weren’t bad at first glance, but investors quickly realized that the deeper story underneath was less encouraging. The used car giant posted revenue of $5.95 billion, down 1% year-over-year (YOY), though still slightly ahead of Wall Street expectations. Adjusted EPS fell 46.9% year over year to $0.34, but beat estimates.
When investors looked beyond those numbers, the pressure inside the business became hard to ignore. Retail sales were soft. CarMax sold 181,188 used vehicles during the quarter, while same-store used unit sales fell 1.9% YOY. The biggest problem was profit. Retail gross profit per used car fell to $2,115, down $207 from last year, after CarMax lowered prices to improve sales trends and stay competitive.
The department store’s performance also showed signs of cracking, with profit per unit falling $105 to $940 as unit sales of cars rose 3% to 122,781.
That pressure hit margins hard. Net profit fell 9.4% year over year to $605.3 million.
Then came a number that may have been the most disappointing to Wall Street. Although CarMax reported positive adjusted earnings, its actual GAAP results showed a quarterly loss of $0.85 per share — a sharp difference that raised concerns about the business’s true financial strength. Even for the full fiscal year, GAAP EPS fell to $1.68 from $3.21 last year.
In addition, investors seemed concerned that CarMax was spending too much money in a weak area. The company continued to repurchase shares, buying back nearly $632 billion during fiscal 2026, while ending the year with $122.8 million in cash and cash equivalents versus more than $2 billion in long-term debt. At the same time, management still plans to increase operations with new stores, auction centers, and about $400 million in capital spending during the 2027 fiscal year.
That combination of falling earnings in fiscal 2026, weak margins, a Q4 GAAP loss, and continued spending explains why KMX stock fell 15.1% after the report. Investors were reacting with fears that CarMax may need a long time to fully establish its business in the strong used car market.
Analysts expect the company’s adjusted EPS for fiscal 2027 to decline 21% YOY to $2.30 before rising 23% YoY to $2.83 in 2028.
What Are Analysts Expecting About CarMax Stock?
KMX stock currently carries an overall consensus rating of “Hold”. Of the 20 analysts covering the stock, two advise a “Strong Buy,” 14 play it safe with a “Hold,” one suggests a “Neutral Sell,” and three are skeptical, “Strong Sell.”
While KMX’s $40.25 target price suggests a potential 7.7% retracement from current price levels, the Street’s high price target of $60 suggests the stock could rally 60.5% from here.
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At the date of publication, Sristi Suman Jayaswal did not have (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
