Does CarMax (KMX) Have the Potential for Price Improvement?

Investment management company First Pacific Advisors recently released its “The FPA Crescent Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the third quarter, the fund gained 5.54% and 15.32% in the trailing twelve months. The fund’s top five performers contributed 6. 65% to its trailing twelve-month return while its bottom five detracted 2.58%. In addition, you can check the top 5 holdings of the fund to know its best picks in 2025.

In its third-quarter 2025 investor letter, The FPA Crescent Fund highlighted stocks such as CarMax, Inc. (NYSE:KMX). CarMax, Inc. (NYSE:KMX) is a used vehicle retailer headquartered in Richmond, Virginia. The one-month return of CarMax, Inc. (NYSE:KMX) was -7.48%, and its shares lost 46.61% of their value over the last 52 weeks. On November 5, 2025, CarMax, Inc. (NYSE:KMX) stock closed at $40.81 per share, with a market capitalization of $5.993 billion.

The FPA Crescent Fund stated the following regarding CarMax, Inc. (NYSE:KMX) in its third quarter 2025 investor letter:

“CarMax, Inc. (NYSE:KMX),  the largest retailer of used cars in the US, has been a disappointment. We entered 2025 with hopes that an improved omnichannel offering in an improving used vehicle market would drive increased sales volumes, market share, and profit growth. Instead, we’ve watched management make a series of missteps. The company withdrew its 2030 unit sales targets at the beginning of the year, citing tariff related uncertainty expected to have little impact five years from now — stated medium not particularly confidence boosting, especially when their competitors retained their term goals. Management mistakenly expected their strong fiscal first quarter to continue. They overbought inventory at elevated prices, which they were then forced to work through in the second quarter, causing them to lose market share. Investors have punished the company for its mistakes, and shares have declined by 47% year to date. Despite our disappointment in management’s execution, the company’s share price appears inexpensive to us . CarMax trades for roughly 12x forward consensus earnings and 1.1x tangible book value. Two independent directors bought shares in early October, seemingly supporting that view. The company also increased its share repurchase program, though we wish they would have held off on repurchases until the market was aware of the current disappointing news. We still believe that CarMax has built a differentiated used vehicle retail business and could see substantial share price improvement if the company rights itself, but operational execution needs to significantly improve.”

In another article, we covered CarMax, Inc. (NYSE:KMX) and shared Diamond Hill Select Fund’s views on the company. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.