Investment Thesis
CarMax faces a fundamental profitability crisis with EPS collapsing 47.7% YoY, revenue stagnating at 0% growth, and negative free cash flow of -$85.7M indicating the company is burning cash. Compounding this deterioration, excessive leverage at 2.87x debt-to-equity combined with anemic returns (ROE 3%, ROA 0.7%) and thin margins (2.3% net) create acute financial distress risk, particularly if operating performance continues to decline.
Strengths
- Current ratio of 2.70x provides short-term liquidity cushion
- Company maintains positive operating cash flow of $17.6M
- Still generating positive net income of $185.6M despite challenges
Risks
- Catastrophic free cash flow burn of -$85.7M; company is destroying cash
- EPS plummeting 47.7% YoY with revenue flat indicates severe operational deterioration
- Dangerous leverage of 2.87x debt-to-equity with only $132.2M cash against $17.6B long-term debt creates solvency risk
- Razor-thin net margin of 2.3% leaves no buffer for cyclical downturns in automotive retail
- Quick ratio of 0.82x reveals heavy inventory dependence; illiquid asset base
Key Metrics to Watch
- Free cash flow trend—must return to positive territory to avoid balance sheet stress
- EPS trajectory—current 47.7% decline is unsustainable; watch for stabilization
- Debt service coverage—operating cash flow inadequate relative to debt obligations
- Gross margin sustainability—10.7% is already compressed; further erosion signals competitive weakness
- Revenue growth—0% growth with deteriorating profitability is a lethal combination
Financial Metrics
Revenue
8.0B
Net Income
185.6M
EPS (Diluted)
$1.31
Free Cash Flow
-85.7M
Total Assets
26.6B
Cash
132.2M
Profitability Ratios
Gross Margin
10.7%
Operating Margin
N/A
Net Margin
2.3%
ROE
3.0%
ROA
0.7%
FCF Margin
-1.1%
Balance Sheet & Liquidity
Current Ratio
2.70x
Quick Ratio
0.82x
Debt/Equity
2.87x
Debt/Assets
77.0%
Interest Coverage
N/A
Long-term Debt
17.6B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-07-28T06:04:01.093895 |
Data as of: 2026-05-31 |
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