Giverny Capital is Bullish on CarMax (KMX)

Giverny Capital, an investment management company, recently published its third-quarter investor letter in 2022. A copy of the same can be downloaded here.  In the third quarter, the fund’s performance was in line with the market, but it underperformed year-to-date. During the quarter, the fund fell by 4.64%, net of fees, compared to a 4.88% decline for the Standard & Poor’s 500 Index benchmark. Year-to-date, the portfolio returned -28.71%, net of fees, compared to a return of -23.87% for the S&P 500 Index. You can check the top 5 holdings of the fund to see its best picks for 2022.

Giverny Capital discussed stocks like CarMax, Inc. (NYSE:KMX) in the Q3 2022 investor letter. Based in Richmond, Virginia, CarMax, Inc. (NYSE:KMX) is a US-based used vehicle retailer. On October 18, 2022, CarMax, Inc. (NYSE:KMX) stock closed at $60.69 per share. One-month return of CarMax, Inc. (NYSE:KMX) was -25.13% and its shares lost 56.20% of their value over the last 52 weeks. CarMax, Inc. (NYSE:KMX) has a market capitalization of $9.59 billion.

Here is what Giverny Capital specifically said about CarMax, Inc. (NYSE:KMX) in its Q3 2022 investor letter:

“Other holdings enduring difficult years include CarMax, Inc. (NYSE:KMX), the largest used car retailer in the country. Demand for used cars can be cyclical, and right now sales are off as cars become less affordable. The current soft patch comes as Carmax has ramped up investment in its ability to sell more cars online. So, we have a double whammy of lower sales and higher investment in future growth. Earnings may fall in half this year, which succinctly explains the stock falling in half. I am positive, however, that Carmax continues to have, by far, the best business model for selling used cars. The success of its Instant Offer program means it has an efficient system to acquire inventory from consumers. It has the lowest costs for refurbishing those cars for resale and the lowest freight costs for moving cars to the markets where they’ll sell most profitably. It has the lowest costs in percentage-of-revenue terms of national advertising, because of its scale. The TV ads build the brand. It turns inventory faster than peers, and because used cars lose value at a rate of about $10 per day, a 15-day advantage in inventory turn amounts to $150 per car of higher profit.

Add it all up, and this is a highly advantaged company. I see no compromise to its long-term competitive position. Indeed, Carmax is gaining share in a weak market. I continue to believe Carmax could earn $10 per share in a few years, while still only commanding a mid-single digit percentage of all used car sales. The stock has been as low as $60 recently.”

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CarMax, Inc. (NYSE:KMX) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 28 hedge fund portfolios held CarMax, Inc. (NYSE:KMX) at the end of the second quarter which was 27 in the previous quarter.

We discussed CarMax, Inc. (NYSE:KMX) in another article and shared Claret Asset Management’s views on the company. In addition, please check out our hedge fund investor letters Q3 2022 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.