Used car giant CarMax got a mixed review for stockholders from The Motley Fool’s Alex Planes. Revenue over the past three years got a passing mark with its 51% increase, but improving profit margin didn’t make the cut. Here’s what the analyst sees as strong potential for CarMax – and likely for other growing used vehicle retailers…..
- CarMax has plans to become a direct subprime auto loan originator through its own financing arm, which could increase profit margins.
- CarMax’s pilot program for subprime lending could become a major revenue driver. Subprime loans make up about 18% of CarMax’s revenue.
- CarMax makes up 2% of all used vehicle sales in the US and its earnings per share are expected to grow 10% per year over the next few years. CarMax has plenty of opportunities to capitalize on its market strength.
- Strong same-store sales growth is delivering its benefits in brand recognition, inventory variety, and geographical footprints. Launching three new superstores in the third quarter of 2013 has paid off; there will be another 14 of these superstores opening up in 2014 – including new market presence in Portland, Reno, Rochester, and Spokane. That store opening plan will continue – 10 to 15 new stores per year for the next few years.
- Certified used vehicle sales bode well for CarMax; 55% of new-car buyers are open to considering used cars if they’re certified, according to a recent survey by AutoTrader.com.