Wedbush Securities analyst Seth Basham says he is cautious about auto retailers at this point. He says CarMax, Inc (KMX), which is near peak valuations, is one of the names he is cautious on.
“Importantly, most other finance companies in auto finance have multiples somewhere below 12 times forward earnings; if you value CarMax’s finance earnings stream at 12 times, it would imply that their other businesses are being valued at a nearly 30 times forward earnings multiple, which would be the highest within our hardlines retail universe,” Basham says.
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Not only is CarMax expensive from a valuation standpoint, but Basham says the stock is also expensive on fundamentals.
“We’re forecasting same-store sales of approximately 4% for 2015, and that’s down a little bit from 2014 and down a lot from 2013,” he says.
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