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Last update on 2024-06-06

CarMax (KMX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Explore the Piotroski F-Score analysis of CarMax (KMX) for 2023. Evaluate the company's financial health based on key criteria including profitability and liquidity.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 5

We're running CarMax (KMX) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
0
Number of shares not diluted?
1
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
0

The Piotroski F-Score gives a look into CarMax's (KMX) financial health based on 9 criteria, focusing on profitability, liquidity, and operating efficiency. CarMax has scored 5 out of 9, indicating a moderate financial position. Some positive factors include its positive net income and cash flow from operations, a reduction in outstanding shares, and a slight decline in leverage. However, the score is impacted by declining return on assets (ROA), gross margin, and asset turnover, alongside a decrease in the current ratio, signaling potential issues in operational efficiency and short-term liquidity.

Insights for Value Investors Seeking Stable Income

Based on a Piotroski Score of 5, CarMax (KMX) exhibits a mixed financial health. The positive aspects like strong cash flow, positive net income, and share buybacks are encouraging, suggesting some aspects of fundamental strength and shareholder returns. However, decreasing ROA, gross margin, and asset turnover are concerning and suggest room for improvement in operational efficiency. This stock might be worth investigating further for those willing to scrutinize the company's long-term strategies and operational improvements. As a potential investor, caution is recommended, but CarMax might have potential if they can address and improve their weaknesses.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of CarMax (KMX)

Company has a positive net income?

Net income is the total profit of a company after all expenses have been deducted from revenue.

Historical Net Income of CarMax (KMX)

CarMax (KMX) reported a net income of $484,762,000 in 2023, which is positive. This trend is notable as it signifies that despite potential market fluctuations and economic conditions, the company has been able to generate profit. However, it is a noticeable decline compared to their net income of $1,151,297,000 in 2022, which may raise concerns among investors. Comparing the past 20 years of data, the net income has been relatively stable with occasional decreases in certain years due to external economic conditions. Therefore, for this criterion, we add 1 point to CarMax's score.

Company has a positive cash flow?

Cash Flow from Operations is crucial as it indicates the cash generated by a company’s regular business operations.

Historical Operating Cash Flow of CarMax (KMX)

In 2023, CarMax's CFO stands at $1,283,332,000, which is indeed positive. This not only earns the company a point in the Piotroski Score but also marks a significant recovery from the considerably negative CFO of -$2,549,450,000 in 2022. Moreover, examining the 20-year trend shows substantial fluctuations, often dipping into negatives. Yet, 2023 highlights a strong rebound for CarMax. Historically, CarMax has faced years with substantially negative CFO, especially in 2012 and 2022, when it went below the $-2,000,000,000 mark.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) looks at the year-over-year improvement in a company's ability to generate earnings from its assets.

Historical change in Return on Assets (ROA) of CarMax (KMX)

The ROA for CarMax fell from 0.0481 in 2022 to 0.0185 in 2023, indicating a decline rather than an increase. Given this drop, CarMax receives 0 points for this criterion. Over the last 20 years, CarMax has seen fluctuations in its ROA, with the 2023 ROA significantly below the industry median, which was 0.1862 in 2023. This trend highlights performance issues and inefficiencies in asset utilization in 2023 despite previously better years.

Operating Cashflow are higher than Netincome?

The criterion examines whether Operating Cash Flow (OCF) exceeds Net Income, which indicates quality earnings.

Historical accruals of CarMax (KMX)

For CarMax (KMX) in 2023, Operating Cash Flow is $1,283,332,000, significantly higher than the Net Income of $484,762,000. This positive trend suggests that the company is generating sufficient cash flow from its operations to cover its net income, reflecting high-quality earnings. Historical data supports this with fluctuating OCF; however, 2023 shows a notable positive difference, granted 1 point for this criterion.

Liquidity of CarMax (KMX)

Leverage is declining?

Change in leverage measures the company's alteration in debt compared to its equity.

Historical leverage of CarMax (KMX)

In 2022, CarMax had a leverage of 0.7099, while in 2023, the leverage slightly decreased to 0.6989, thus scoring a point in the Piotroski analysis. This marginal reduction hints at a slight improvement in balancing debt and equity. However, over the past 20 years, there's been a clear uptrend in leverage, indicating a growing dependence on debt financing. This long-term pattern should be closely monitored despite the recent minor improvement.

Current Ratio is growing?

The current ratio is a measure of a company's ability to pay off its short-term liabilities with its short-term assets. A higher current ratio indicates that the company is more capable of paying its obligations; a ratio below 1 suggests potential liquidity problems.

Historical Current Ratio of CarMax (KMX)

For CarMax (KMX), the current ratio has decreased from 3.1987 in 2022 to 2.6009 in 2023. This decline implies that CarMax's short-term liquidity has weakened. However, with a current ratio still above the industry median of 1.1692 in 2023, CarMax remains in a relatively strong liquidity position compared to its peers. It's a noteworthy deterioriation as its ratio is trending lower than its 20-year average of 2.7081. This does not gain CarMax a point under the Piotroski analysis.

Number of shares not diluted?

A decrease in outstanding shares indicates the company is buying back its own stock, which can be a sign of management's confidence in the company's future prospects.

Historical outstanding shares of CarMax (KMX)

In 2022, CarMax had 162,410,000 shares outstanding, which decreased to 158,800,000 in 2023. This drop in outstanding shares is a positive sign and suggests that the company is engaging in share buybacks. Over the past 20 years, the trend shows a gradual decrease in outstanding shares, especially notable from 2012 onwards, reflecting consistent buyback activity. This reduction in share count often leads to higher earnings per share and can signal strong financial health. Thus, under the Piotroski Analysis, CarMax earns 1 point for this criterion.

Operating of CarMax (KMX)

Cross Margin is growing?

Change in Gross Margin measures whether a company has managed to improve its profitability over the previous year. Consistent improvement in gross margins can be seen as a sign of operational efficiency and pricing power.

Historical gross margin of CarMax (KMX)

Comparing the Gross Margin of 0.0943 in 2023 with 0.1031 in 2022, it is evident that the Gross Margin has decreased. Therefore, it does not meet the criteria for an increase, resulting in a score of 0. This declining trend could be a concern, especially since the Gross Margin for CarMax (KMX) has been on a downward trajectory from 0.1525 in 2019, significantly underperforming the industry's median Gross Margin of 0.1862 in 2023. Over the past 20 years, CarMax’s Gross Margin has generally been below the industry median, indicating potential persistent competitive pressures or operational inefficiencies that need addressing.

Asset Turnover Ratio is growing?

Asset Turnover is a key profitability ratio comparing sales to assets

Historical asset turnover ratio of CarMax (KMX)

CarMax's Asset Turnover Ratio has decreased from 1.3325 in 2022 to 1.1304 in 2023. This signifies that the company is generating less sales per dollar of assets compared to the previous year. This drop continues a fluctuation observed over the past 20 years, with a historical high in 2003 at 4.8478 and a low in 2021 at 0.8892. This decline in asset turnover shows a deterioration in efficiency, potentially pointing to either decreased sales, increased asset base, or a combination of both. Thus, one should set the score to 0 for this criterion.


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