Used Car Dealer CarMax Had a Board Member Buy In

Other auto dealers include AutoNation, Inc. (NYSE:AN), Penske Automotive Group, Inc. (NYSE:PAG), Group 1 Automotive, Inc. (NYSE:GPI), and Sonic Automotive Inc (NYSE:SAH). These peers all trade at a discount to CarMax, with Penske and Group 1 trading at 16 times trailing earnings while the trailing P/E multiples of the other two companies are still below 20. All four of these comparable companies have posted double-digit revenue growth rates versus a year ago as well, though only in the case of AutoNation and Group 1 has that translated into a similarly strong improvement on the bottom line. AutoNation also stands out for carrying a beta just under 1, while the other companies are about as responsive to the market as CarMax. Overall it seems that this peer group would be a richer source of value than CarMax. In addition, it’s possible that this insider purchase is occurring due to perceived strength in economic trends that would benefit auto dealers in general, rather than factors specific to the company.

With its peers generally cheaper in terms of their trailing earnings, and generally matching CarMax in terms of sales growth, we don’t think that it is a good buy either in absolute terms or compared to its industry. AutoNation and Group 1 in particular seem to have significant advantages at least upon first look, and would be better places for an investor to begin their research.

Disclosure: I own no shares of any stocks mentioned in this article.