A commentator on a recent text suggested to me to take a look at Lithia Motors (LAD), a company similar to Carmax. I've looked at it and it seemed to me like a very interresting investment. In fact, it's probably one of the most interesting companies right now on the stock market in my opinion because of the valuation VS growth. However, the sector may be a little too much related to the general state of the economy.
And even if Lithia Motors looks pretty good, I have to say that Carmax looks interesting too. The stock was recently at an annual low, altogether with many other stocks. It's often a good time to shoot when many companies are down at the same time. It means that your target probably hasn't internal problems.
Here's how I work to analyze a company which seems interesting. In this case, I was able to compare two similar companies with the same metrics. I think we always can compare any two companies, whatever the sector in which they operate. But when the comparison is between two companies in the same sector, it's even easier to make a choice.
Actual PE ratio: 18
Lowest / Highest PE ratio last 5 years: 17 / 25
Performance last 5 years: 64%
Performance last 10 years: 281%
LT debt / annual profits: 15,6 times (pretty high)
Number of shares last 5 years: small buyback
Annual EPS growth last 5 years: 17%
Actual ROE: 19
ROE last 5 years: 17
Actual PE ratio: 17
Lowest / highest PE ratio last 5 years: 12 / 28
Performance last 5 years: 792%
Performance last 10 years: 310%
LT debt / annual profits: 13,3 times (pretty high)
Number of shares last 5 years: no buyback, but no dilution either
Annual EPS growth last 5 years: 93%
Actual ROE: 25
ROE last 5 years: 18
Winner in each category
Actual PE ratio: LAD
Lowest / highest PE ratio last 5 years: KMX is the closest to the lowest PE ratio of the last 5 years
Performance last 5 years: LAD
Performance last 10 years: LAD
LT debt / annual profits: LAD
Number of shares last 5 years: KMX
Annual EPS growth last 5 years: LAD
Actual ROE: LAD
ROE last 5 years: LAD
Lithia Motors seems to me to be the best investment. The growth is better, the ROE is better, the debt is smaller and the PE ratio is smaller. There's a lot of debt in this industry (probably because they have to buy used cars before selling them). But both companies are very well managed and I think both will do well in the future.
In fact, I may buy both companies pretty soon. But If I do, the biggest investment will be LAD because most of the numbers suggest that this company will continue to do better than KMX.