CarMax (KMX)

Company

kmx(1)_1yr
KMX 1-year chart

"CarMax, a FORTUNE 500 company and one of the FORTUNE 2009 '100 Best Companies to Work For,' is the nation's largest retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 100 used car superstores in 46 markets. The CarMax consumer offer provides our customers the opportunity to shop for vehicles the way they shop for items at other national retailers, and it is structured around four customer benefits: low, no-haggle prices; a broad selection; high quality vehicles; and customer-friendly service. During the twelve months ended February 28, 2009, the company retailed 345,465 used vehicles and sold 194,081 wholesale vehicles at its in-store auctions." (company website)

kmx(1)
KMX 6-month chart

Buy

A used-car business should do well in a rotten economy, right? Apparently so. When CarMax announced earnings at the beginning of February, they blew past Expectations. The stock has pulled back to the 200-day momving average from the new peak established on that news and seems poised to rise again.

  • Percentage price oscillator (PPO) — although below the signal line, narrowing the gap
  • Volume — rising steadily until earnings news, with 3x volume on the news

Based on technical analysis, MarketEdge calls KMX a "strong buy" in a "weak upward trend."

Sell

gain Bottom line
8%

CarMax got up high enough today to net a profit of $1 per share, so I sold. True, the stock appears to be on the cusp of breaking above the recent high in response to earnings (2-Apr), and the 50-day moving average has recently crossed above the 200-day MA. Nevertheless, volumes have fallen off a bit, and with several recent losses, I decided this was time for "bird-in-the-hand" thinking.

What I expect to happen with KMX is a period of consolidation around the $13 level before there is much more upward movement; if that happens, then my money would be tied up for little increased return. And, if could just as well retreat. Hence "bird-in-the-hand."