CarMax, Inc (KMX), Group 1 Automotive, Inc. (GPI), America’s Car-Mart, Inc. (CRMT): Should You Invest in Used Cars?

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So, I just bought myself a car. Note that I don’t say that I bought myself a NEW car, but just a car. It’s a Chevy Impala with all the bells and whistles and, like a lot of guys with new cars, I’m very pleased with it. It’s got a lot of bells and whistles that my old one didn’t. Heck, I’m still figuring out what all of the buttons on the console do. It comes with everything.

Bullish options in play as CarMax shares popWhat it also comes with is a previous owner. I bought it used. I know the old trope is still out there that buying a used car is a terrible risk, and the image of the slimy used car salesman trying to steer an unsuspecting buyer is a persistent one. In my experience, however, it doesn’t really apply anymore. At least it doesn’t if the buyer (me, in this instance) is doing things the right way. There’s no longer any reason to buy a used car that’s anything other than reliable and backed by a solid guarantee.

Yes, I could have gone to some seedy roadside used car place. But I didn’t. I went to a CarMax, Inc (NYSE:KMX) dealership here in South Carolina and got to test drive several models at my own pace and without pressure. It was, overall, a positive experience. Just like the way I’ve bought several cars from various used car dealerships in the past. That’s what got me thinking about the way the industry has grown and changed over the years.

CarMax, Inc (NYSE:KMX)

Carmax is probably the most visible sign of the change in the used car business over the years. A buyer can look online, decide on a model and options and arrange to look at cars at his or her convenience. CarMax, Inc (NYSE:KMX) even makes it easy to trade in one’s old car if necessary. The firm has a good business model and a better way of handling customers.

In terms of investing, I think CarMax, Inc (NYSE:KMX) is a good buy. The firm’s stock has grown more than 50% since last June, and insiders have been buying it back for themselves. I wish it paid a dividend, like I always do, but I think the growth will offset that. The P/E of 21.01 indicates to me that others think there’s still some growth inside Carmax.

America’s Car-Mart, Inc. (NASDAQ:CRMT)

A bit different, America’s Car-Mart, Inc. (NASDAQ:CRMT) has a larger focus on older used vehicles. It also makes a significant amount of its profit through financing the cars it sells. I like the way the entire arrangement is integrated. That’s not unique to America’s Car-Mart, Inc. (NASDAQ:CRMT), of course. However, it’s a positive sign whenever a business has the sense to try to control all aspects of a transaction.

The company posted a profit recently that beat expectations, and shares have jumped on the news. With a P/E below 15, that might indicate that the value is slipping away for a new investor for a while. Combine that with a wild ride for the firm’s shares over the last year, which has left the stock flat for the last 12 months, and I’d be cautious in investing for anything but the five year+ time frame.

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