CarMax Inc. (KMX) shares have been under significant pressure, down almost 50% this year, and have sharply underperformed the S&P 500’s (SPX) 17% gain. The stock’s weakness reflects a challenging operating environment characterized by declining sales, narrowing profit margins, rising loan-loss provisions, and growing concerns about CarMax’s strategic positioning in the used-vehicle market. Disappointing quarterly earnings have further weighed on investor confidence.
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Given this backdrop, I maintain a neutral view on CarMax heading into its upcoming earnings release tomorrow — a moment of reckoning for both its shareholders and the stock. While valuation has become more attractive following the sell-off, near-term fundamentals remain challenged, and strategic uncertainty has increased following recent management changes.
Upcoming Earnings: Expectations Reset Lower
CarMax is scheduled to report its fiscal third-quarter 2026 earnings on December 18, before the market opens. Consensus estimates currently call for earnings per share of $0.33 on revenue of $5.66 billion. Over the past year, analysts have sharply reduced expectations, with EPS estimates cut by nearly 60% and revenue forecasts lowered by more than 10%.
This reset follows a negative pre-announcement issued on November 6, when the company guided to weaker-than-expected results and announced that CEO Bill Nash would be stepping down. That combination meaningfully altered investor sentiment and reframed the importance of the upcoming report. In my view, this earnings release is less about whether CarMax can clear a lowered bar and more about how the Board and incoming leadership articulate the path forward.
Management’s preliminary guidance implies a sequential slowdown in used-unit sales and a sharp year-over-year decline in earnings. CarMax expects comparable-store used-unit sales to fall between 8% and 12% year over year, materially worse than prior expectations. At the same time, diluted EPS guidance of roughly $0.18 to $0.36 reflects pressure from lower retail volumes, weaker wholesale performance, and a significant increase in marketing spending.
Based on this guidance, I am modeling used-unit comparable sales down ~9% year-over-year. I estimate EPS closer to the upper end of the company’s operating outlook, reflecting the possibility that CarMax structured its guidance conservatively. Even so, results are likely to show meaningful year-over-year deterioration.
For the quarter, I am modeling CarMax Auto Finance (CAF) income of roughly $154 million, broadly in line with consensus. This assumes modest growth in managed receivables, a stable average contract rate near 11%, and loan-loss provisions that decline sequentially from elevated prior-quarter levels.
Strategy Under Review After Leadership Change
Beyond the numbers, the more critical issue for investors is strategic direction. Management has cited macroeconomic pressures as a contributor to the slowdown, but the absence of clear market-share data to substantiate this claim raises questions. Recent data suggest that weakness among lower-income consumers is intensifying and beginning to affect middle-income buyers as well, but the abrupt CEO transition implies that execution and strategy are also under scrutiny.
The Board has indicated that it believes CarMax’s overall strategy remains sound, but that execution can improve. That may prove true over time, yet any new leadership team will likely reassess aspects of the business model, including pricing, marketing intensity, and digital competitiveness. In the near term, that process could introduce additional costs and earnings volatility.
Longer-Term Positioning Still Has Merits
Despite near-term challenges, CarMax retains meaningful long-term strengths. The U.S. used-vehicle market remains highly fragmented, with roughly 40 million used cars changing hands annually. CarMax’s market share has grown gradually to about 4%, up from approximately 3.5% in 2020, leaving substantial runway for further gains.
The company’s omnichannel platform, national scale, and focus on older, more affordable vehicles position it to benefit when affordability improves. A more material reversion in used-vehicle prices toward pre-pandemic levels could meaningfully boost unit volumes by restoring consumer purchasing power. If that scenario unfolds, CarMax could see a faster-than-expected recovery in comparable sales.
Valuation is Not the Problem
From a valuation perspective, CarMax appears more attractive following the recent stock sell-off. The stock trades at a P/E of approximately 12x, well below its five-year historical average of 21 and the sector median of 16. EV-to-sales multiples of 0.88 also sit below both historical and peer benchmarks to boot.
Using a combination of valuation models, including earnings and sales-based multiples, I estimate fair value around $52 per share, implying close to 28% upside from current levels. However, I view that upside as contingent on strategic clarity and stabilization in operating trends rather than something that will materialize quickly.
Is KMX a Buy, Sell, or Hold?
According to Wall Street analysts tracked by TipRanks, CarMax carries an average Hold rating, with 2 Buy, 12 Hold, and 3 Sell ratings. The average price target of $39.91 is roughly in line with the current share price, suggesting ~2.2% downside over the course of next year.
Neutral Until Strategy and Execution Improve
CarMax’s valuation has reset to more compelling levels, but near-term fundamentals remain under pressure, and strategic uncertainty has increased following recent leadership changes. While the company retains strong long-term positioning in a fragmented market, I believe patience is warranted until there is more unmistakable evidence of operational stabilization and a more defined strategic roadmap.
As a result, I maintain a neutral view on CarMax for now. The stock may offer longer-term upside if execution improves and affordability trends turn more favorable, but the upcoming earnings report is unlikely to resolve the key questions investors are grappling with this week.