CarMax Stock Just Crashed - Is This Your Buying Opportunity?

CarMax shares just hit the skids - and Wall Street's scrambling to explain the bloodbath.

What's Really Driving the Drop?

The used-car giant's valuation took a nosedive that'd make any day trader sweat. Traditional analysts are pointing to inventory issues and financing costs while completely missing the bigger picture.

Meanwhile in crypto-land...

DeFi auto markets are quietly eating CarMax's lunch with peer-to-peer vehicle transactions settling in seconds, not days. No loan applications, no dealership markups - just smart contracts and transparent pricing.

The Bottom Line

While legacy auto retailers wrestle with 20th-century financing models, blockchain solutions are demonstrating what actual market efficiency looks like. Maybe the stock crash isn't just about quarterly numbers - it's about an entire business model showing its age.

Another day, another traditional finance player learning that 'disruption' isn't just a buzzword in venture capital pitch decks.

Image source: Getty Images.

Resilient unit economics, but slower demand

For the quarter ended Aug. 31 (fiscal Q2), total sales were $6.59 billion, down 6% year over year as retail used unit sales fell 5.4% and comparable store used units declined 6.3%. The average retail selling price slipped 1% to about $26,000. Wholesale units decreased 2.2%.

Looking to profits, earnings per share was $0.64 -- compared with $0.85 a year ago. Selling, general, and administrative (SG&A) expenses were down modestly to $601 million, helping the bottom line.

Notably, unit economics held up: Retail gross profit per used vehicle was $2,216, and wholesale gross profit per unit was $993. These were about in line with last year's second quarter.

President and CEO Bill Nash acknowledged the quarter's challenges while pointing to actions underway.

"While this was a challenging quarter, we remain confident in our long-term strategy and the strength of the earnings model that we have built," he said. "We will continue to drive SG&A efficiency, targeting at least $150 million in incremental SG&A reductions over the next 18 months."

In other words, CarMax plans to take costs out while protecting its pricing and omnichannel experience.

A key headwind is financing. CarMax Auto Finance income declined 11% to $103 million as the provision for loan losses ROSE to $142 million from $113 million a year ago. The company increased lifetime loss estimates primarily on 2022 and 2023 vintages, though it said those vintages remain profitable and that loans originated after April 2024 are performing in line with expectations. As of quarter-end, the allowance for loan losses was just over 3% of auto loans held for investment, up from 2.8% as of May 31.

Highlighting CarMax's long-term confidence in the business, management repurchased $180 million of stock during the period.

What the sell-off gets right (and what it may be missing)

The drop makes sense: Demand softened, credit costs rose, and earnings missed analysts' consensus forecast.

However, the key elements of the long-term model still look intact. First, unit margins held steady despite lower volumes, suggesting pricing discipline and sourcing remain sound. Second, digital capabilities continue to support the omnichannel approach; management said 80% of retail unit sales used its digital tools in the quarter. Third, SG&A actions should help earnings power as volumes stabilize. Finally, auto finance provisioning reflects vintage-specific normalization more than a structural break; management says newer originations are tracking expectations.

Despite its challenges, the stock's valuation looks attractive now. After the sell-off to new 52-week lows in the mid-$40s, investors could essentially be paid more to wait for volumes to recover and for credit to normalize (assuming the stock eventually recovers).

Of course, the stock's reset lower won't eliminate volatility. If macro conditions worsen, comps and credit could worsen or fail to recover. However, the downside now more accurately reflects these risks.

Overall, the market just priced in a lot of bad news at once. Meanwhile, CarMax remains a scaled category leader with stable per-unit profitability, a proven omnichannel model, and levers for cost reduction and sourcing that can support earnings when demand improves. After this week's sell-off, the stock looks attractive for patient investors. But, given the weak macroeconomic environment for autos, the prudent MOVE may be to start small and add over time as comps stabilize and credit trends confirm improvement.