Brad Thomas
Founder & Lead Analyst of Wide Moat Research
CarMax's turnaround is still unfolding, and the latest quarter reinforced it. Used retail unit sales rose 9%, the $200M SG&A savings target is on track, CarMax Auto Finance penetration is growing, and about $35 per vehicle of EPP profit uplift is expected by FY27; management says it has turned the corner. At about 17x forward earnings, the stock still trades below its 20.8x historical average despite improving fundamentals, so the buy-up-to price is being raised. x.comÂ
Carvana's rising costs and falling loan-sale gains leave volume growth without operating leverage. Ad spending rose to $152M from $121M last quarter, and $3.45B of inventory enters a seasonally weak quarter. Gain on sale fell less than expected; it still tops $2,000 upfront on a roughly $25,000 car, but the chart uses all retail units, not just financed ones. The after-hours rise should fade, and an ABS-market freeze would make those gains irrelevant. x.com x.com x.com x.comÂ
Carvana faces a tough road ahead based on its earnings and management commentary. Anyone expecting 30%+ growth for a while could be surprised within a few quarters by major deceleration and margin pressure. x.comÂ
Carvana and CarMax face a worsening used-car demand outlook: search growth has rolled over, and their app-download growth has slowed. Inflation and interest rates are among the pressures behind the slowdown, on top of the previously noted weaker pricing power and rising inventory. x.com x.com x.comÂ
Carvana's clean Q1 beat in a strained consumer environment is reassuring, but collapsing free cash flow is the number the bear case lives in. Revenue rose 52% to $6.43B and adjusted EBITDA of $672M beat, with SG&A per unit down 7.8% and retail GPU recovering from Q4 reconditioning issues; full-year EBITDA estimates rise to about $2.9B. Free cash flow fell 73% to $56M versus a $157M estimate, pointing to inventory build or rising financing costs. Q2 retail GPU faces headwinds. x.comÂ
Credit Acceptance faces pressure because subprime car buyers are running out of money. Its EPS growth has come largely from buybacks, with operating cash flow flat over five years, per another investor's review, and lending businesses like this are very hard to analyze. x.comÂ
CarMax's plan to sell more affordable models to subprime buyers overlooks that such a business needs to be subsidized. The strategy comes alongside bad earnings that sent the stock down 15%. x.comÂ
Subprime auto loans continue to hold up, yet Carvana still looks weak. x.comÂ
Mobility Global looks like the typical spinoff most holders dump, not a desirable one like Honeywell Aviation. With Carfax about two-thirds of revenue, it is essentially Carfax, which seems unlikely to remain stand-alone; Equifax, TransUnion or others might eventually acquire it. A reply notes much of Carfax's value comes from public data, with dealers and shops reluctant to share proprietary data. No final decision to sell has been made yet. x.com x.comÂ
Carvana and CarMax face a day of reckoning from negative equity in auto loans. Buyers with 72- or 84-month loans re-enter the market before their loans are paid off, a mismatch between loan length and ownership behavior that sets up negative equity. Incentives on new cars are also trending up. x.com x.comÂ
Copart may be an opportunity because its problems look short-term while its fundamentals stay incredibly clean: zero debt, a large cash pile and a cheap valuation. It takes a fee on every online auction of totaled cars insurers send it, without owning them, a cash machine with historically high margins. Since mid-2025, weak winter earnings, lower volumes as safer cars and pricey insurance lead drivers to pay for small accidents themselves, and a dip from its 42% operating margin hurt the stock. … Show more
