Value
5.9/10data confidence 100%| Component | Sub-score |
|---|---|
| P/E | 4.0 |
| P/S | 10.0 |
| EV/EBITDA | 0.0 |
| Fwd P/E | 7.3 |
| PEG | 9.8 |
| Analyst target | 3.0 |
- ▸Forward P/E: 17.2x
- ▸PEG: 0.54
KMX · Why this verdict
Why CarMax (KMX) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results.
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VerdictSELL
Overall score4.3/10
ConfidenceMEDIUM
MacroNEUTRAL
TrendMatrix Research · core thesis
Engine thesis — one sentence
With the stock already trading above its near-term price target, negative free cash flow, no identifiable competitive moat, declining revenue, RSI deep in overbought territory, and a 12% short position, the current setup does not support new investment — the risk/reward is unfavorable and the fundamental quality floor has not been met.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
Revenue has been declining on a trailing basis while the business scores very low on competitive durability — a combination that limits re-rating potential because there is neither the volume growth nor the pricing power needed to justify multiple expansion. Growth breakdown | Revenue returns to positive growth exceeding 5% per year for 2 consecutive quarters, demonstrating that the contraction is temporary rather than structural. | →Stable |
| CounterOperational improvements that generated the two recent large earnings beats may reflect cost discipline and inventory optimization that can sustain profitability even without top-line growth, making the revenue contraction less structurally threatening than it appears. | ||
RSI at 90 — deep into overbought territory — combined with a flat-to-declining 200-day moving average slope signals late-cycle price behavior consistent with distribution rather than a sustained new uptrend, making current price levels a poor entry point. Momentum breakdown | RSI cools below 65 within 30 days through normal consolidation without the stock breaking below its 200-day moving average, creating a healthier technical backdrop for re-entry. | →Stable |
| CounterStrong and rising volume alongside the RSI reading suggests genuine buyer demand rather than low-volume extension; in a momentum-driven environment, overbought readings can persist for weeks before resolving, and two recent large earnings beats may justify the move. | ||
Free cash flow is negative — the business is not converting reported profits into cash — a material quality shortfall that undermines the credibility of the current earnings multiple and raises questions about the sustainability of the present valuation. Quality breakdown | Free cash flow turns positive for 2 consecutive quarters as inventory management and working capital efficiency improve. | →Stable |
| CounterThe two most recent earnings beats — each exceeding estimates by over 60% — suggest underlying operating performance is improving; if these gains flow through to cash generation, the negative free cash flow concern could resolve within one to two reporting cycles. | ||
A 12% short interest and a put/call ratio above 1.3 indicate that a large portion of the market is actively positioned against the stock, reflecting broad skepticism about the quality or sustainability of the current price level. Key risks | Short interest declines below 6% and the put/call ratio falls below 0.8 as the bear case is resolved, signaling that the skeptical positioning has been abandoned. | →Stable |
| CounterA large short position can itself become a source of upside if an earnings catalyst triggers short covering — the same skepticism that created the 12% short interest could fuel a sharp near-term rally if results continue to exceed expectations. | ||
Revenue has been declining on a trailing basis while the business scores very low on competitive durability — a combination that limits re-rating potential because there is neither the volume growth nor the pricing power needed to justify multiple expansion.
→StableGrowth breakdown
- Expectation
- Revenue returns to positive growth exceeding 5% per year for 2 consecutive quarters, demonstrating that the contraction is temporary rather than structural.
CounterOperational improvements that generated the two recent large earnings beats may reflect cost discipline and inventory optimization that can sustain profitability even without top-line growth, making the revenue contraction less structurally threatening than it appears.
RSI at 90 — deep into overbought territory — combined with a flat-to-declining 200-day moving average slope signals late-cycle price behavior consistent with distribution rather than a sustained new uptrend, making current price levels a poor entry point.
→StableMomentum breakdown
- Expectation
- RSI cools below 65 within 30 days through normal consolidation without the stock breaking below its 200-day moving average, creating a healthier technical backdrop for re-entry.
CounterStrong and rising volume alongside the RSI reading suggests genuine buyer demand rather than low-volume extension; in a momentum-driven environment, overbought readings can persist for weeks before resolving, and two recent large earnings beats may justify the move.
Free cash flow is negative — the business is not converting reported profits into cash — a material quality shortfall that undermines the credibility of the current earnings multiple and raises questions about the sustainability of the present valuation.
→StableQuality breakdown
- Expectation
- Free cash flow turns positive for 2 consecutive quarters as inventory management and working capital efficiency improve.
CounterThe two most recent earnings beats — each exceeding estimates by over 60% — suggest underlying operating performance is improving; if these gains flow through to cash generation, the negative free cash flow concern could resolve within one to two reporting cycles.
A 12% short interest and a put/call ratio above 1.3 indicate that a large portion of the market is actively positioned against the stock, reflecting broad skepticism about the quality or sustainability of the current price level.
→StableKey risks
- Expectation
- Short interest declines below 6% and the put/call ratio falls below 0.8 as the bear case is resolved, signaling that the skeptical positioning has been abandoned.
CounterA large short position can itself become a source of upside if an earnings catalyst triggers short covering — the same skepticism that created the 12% short interest could fuel a sharp near-term rally if results continue to exceed expectations.
Per-dimension breakdown
Quality
2.7/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 1.2 |
| ROA | 1.0 |
| Gross margin | 0.0 |
| Op margin | 1.4 |
| Net margin | 0.4 |
| Current ratio | 9.1 |
| FCF quality | 0.0 |
| Moat | 4.2 |
| Piotroski F | 6.7 |
- ▸Earnings quality RED FLAG: -64% FCF/NI
- ▸No competitive moat
- ▸Quality concerns
Growth
2.5/10data confidence 67%| Component | Sub-score |
|---|---|
| Rev growth | 3.9 |
| EPS growth | 1.0 |
Momentum
5.1/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 5.0 |
| MACD | 8.3 |
| OBV | 1.0 |
| MA position | 8.0 |
| Volume | 3.1 |
- ▸Volume distribution (falling OBV)
- ▸Above 200-MA but MA slope flat
Sentiment
5.2/10data confidence 100%| Component | Sub-score |
|---|---|
| LLM sentiment | 5.4 |
| Analyst rating | 5.0 |
| Price target | 5.2 |
Insider
5.1/10data confidence 50%| Component | Sub-score |
|---|---|
| materiality | 5.0 |
| holder change | 5.2 |
- ▸No net insider activity — $0 (0.000% of mkt cap)
Peer rank
3.8/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 4.1 |
| quality rank | 0.9 |
| growth rank | 5.0 |
Technical
3.2/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 3.2 |
| support resistance | 2.4 |
| 52w position | 4.1 |
Risk (lower is worse)
3.8/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 3.9 |
| days to cover | 5.1 |
| volatility | 0.0 |
| put call | 6.5 |
| implied vol | 4.7 |
| max pain risk | 3.0 |
| beta | 6.2 |
| debt equity | 2.0 |
| news risk | 3.0 |
- ▸Above max pain $18
Catalyst
6.9/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 5.0 |
| earnings history | 6.7 |
| earnings timing | 5.0 |
| surprise avg | 10.0 |
| news activity | 8.0 |
- ▸Strong earnings: 3B/1M
How the verdict was assembled
Engine trigger
Quality below minimum threshold.
Engine technical detail
verdict_path:
L1:HARD_BLOCKPassed (7)
- MOMENTUM:5.1>=4.5
- INSIDER:OK
- NEWS_BOOST:ANALYST:0.40
- NEWS_BOOST:ANALYST_CLUSTER(3)
- EARNINGS_PROXIMITY:97d clear
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (1)
- ASYMMETRY:-0.8=NEGATIVE
Warning (3)
- MOMENTUM:5.1<5.5 (soft — BUY_NOW allowed but watch)
- DEATH_CROSS:momentum=5.1>=5.0 recovering
- 8K_CSUITE_CHANGE:5.02 (officer departure/appointment)
Reward-to-Risk
-0.81
Upside
-12.1%
Downside
15.0%
Sizing output
AVOID
SetupMOMENTUM_CONT — Trend continuation, RSI 62, MACD bullish
EdgeNO_EDGE — No clear edge identified
SuitabilityMODERATE — Balanced profile
Investment implication
The L1 gate blocked the positive-verdict path: a hard-floor threshold was breached, so dimensional pillars — including Catalyst at 6.9 could not lift the engine output above the verdict floor. Failed gate signal: ASYMMETRY:-0.8=NEGATIVE.
The strongest dimensions are Catalyst at 6.9, Value at 5.9, and Sentiment at 5.2; the weakest are Growth at 2.5, Quality at 2.7, and Technical at 3.2. The V9 engine flagged 1 failed gate with 3 warnings, producing an asymmetric reward-to-risk of -0.81 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1RSI at 90 — deep into overbought territory — combined with a flat-to-declining 200-day moving average slope signals late-cycle price behavior consistent with distribution rather than a sustained new uptrend, making current price levels a poor entry point.
Trip ifStock rises more than 15% from current levels within 90 days without RSI first pulling back below 60, proving the overbought reading was not a barrier to further appreciation.
- P2Free cash flow is negative — the business is not converting reported profits into cash — a material quality shortfall that undermines the credibility of the current earnings multiple and raises questions about the sustainability of the present valuation.
Trip ifFree cash flow rises above $0 for 2 consecutive quarters, demonstrating that reported profits have begun converting into cash.
- P3A 12% short interest and a put/call ratio above 1.3 indicate that a large portion of the market is actively positioned against the stock, reflecting broad skepticism about the quality or sustainability of the current price level.
Trip ifShort interest falls below 6% and put/call ratio falls below 0.8 for 2 consecutive weeks.
- P4Revenue has been declining on a trailing basis while the business scores very low on competitive durability — a combination that limits re-rating potential because there is neither the volume growth nor the pricing power needed to justify multiple expansion.
Trip ifRevenue growth exceeds 5% per year for 2 consecutive quarters.