CarMax, Inc (KMX): Are Hedge Funds Right About This Stock?

Is CarMax, Inc (NYSE:KMX) undervalued? The smart money is becoming less confident. The number of long hedge fund positions decreased by 7 recently.

In the 21st century investor’s toolkit, there are tons of metrics investors can use to track Mr. Market. A couple of the most underrated are hedge fund and insider trading movement. At Insider Monkey, our research analyses have shown that, historically, those who follow the top picks of the top fund managers can outpace their index-focused peers by a very impressive margin (see just how much).

Just as key, optimistic insider trading sentiment is another way to break down the marketplace. There are plenty of incentives for a bullish insider to drop shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Many academic studies have demonstrated the valuable potential of this strategy if piggybackers understand where to look (learn more here).

With all of this in mind, we’re going to take a peek at the key action surrounding CarMax, Inc (NYSE:KMX).

How have hedgies been trading CarMax, Inc (NYSE:KMX)?

In preparation for this quarter, a total of 21 of the hedge funds we track were long in this stock, a change of -25% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings substantially.

When looking at the hedgies we track, Markel Gayner Asset Management, managed by Tom Gayner, holds the largest position in CarMax, Inc (NYSE:KMX). Markel Gayner Asset Management has a $213.5 million position in the stock, comprising 7.9% of its 13F portfolio. On Markel Gayner Asset Management’s heels is Water Street Capital, managed by Gilchrist Berg, which held a $125.6 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Some other hedge funds that are bullish include Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, Rob Butts and Josh Clark’s Southpoint Capital Advisors and Jeffrey Vinik’s Vinik Asset Management.

Judging by the fact that CarMax, Inc (NYSE:KMX) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedgies that slashed their full holdings in Q1. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest stake of all the hedgies we watch, totaling an estimated $62.8 million in stock.. Michael Karsch’s fund, Karsch Capital Management, also said goodbye to its stock, about $19.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 7 funds in Q1.

How are insiders trading CarMax, Inc (NYSE:KMX)?

Insider trading activity, especially when it’s bullish, is best served when the company we’re looking at has experienced transactions within the past 180 days. Over the latest half-year time frame, CarMax, Inc (NYSE:KMX) has seen 2 unique insiders buying, and 11 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to CarMax, Inc (NYSE:KMX). These stocks are Sonic Automotive Inc (NYSE:SAH), KAR Auction Services Inc (NYSE:KAR), Penske Automotive Group, Inc. (NYSE:PAG), Copart, Inc. (NASDAQ:CPRT), and AutoNation, Inc. (NYSE:AN). This group of stocks are the members of the auto dealerships industry and their market caps match KMX’s market cap.