Insider Decision Unfolding At CarMax: Diane Cafritz Exercises Options

Highlighted on January 24, it was unveiled in an SEC filing that Cafritz, EVP at CarMax KMX, executed a significant transaction involving the exercise of company stock options.

What Happened: Cafritz, EVP at CarMax, exercised stock options for 2,730 shares of KMX stock. This information was disclosed in a Form 4 filing with the U.S. Securities and Exchange Commission on Wednesday. The exercise price of the options was $63.04 per share.

As of Thursday morning, CarMax shares are up by 0.82%, with a current price of $68.0. This implies that Cafritz's 2,730 shares have a value of $13,540.

All You Need to Know About CarMax

CarMax sells, finances, and services used and new cars through a chain of about 240 used retail stores. It was formed in 1993 as a unit of Circuit City and spun off into an independent company in late 2002. Used-vehicle sales typically account for about 83% of revenue (78% in fiscal 2023 due to the chip shortage) and wholesale about 13% (20% in fiscal 2023), with the remaining portion composed of extended service plans and repair. In fiscal 2023, the company retailed and wholesaled 807,823, and 585,071 used vehicles, respectively. CarMax is the largest used-vehicle retailer in the U.S. but still estimates that it has only about 4% U.S. market share of vehicles 0-10 years old in 2022. It seeks over 5% share by the end of calendar 2025. CarMax is based in Richmond, Virginia.

CarMax's Economic Impact: An Analysis

Negative Revenue Trend: Examining CarMax's financials over 3 months reveals challenges. As of 30 November, 2023, the company experienced a decline of approximately -5.49% in revenue growth, reflecting a decrease in top-line earnings. As compared to its peers, the revenue growth lags behind its industry peers. The company achieved a growth rate lower than the average among peers in Consumer Discretionary sector.

Interpreting Earnings Metrics:

• Gross Margin: The company faces challenges with a low gross margin of 9.97%, suggesting potential difficulties in cost control and profitability compared to its peers.

• Earnings per Share (EPS): With an EPS below industry norms, CarMax exhibits below-average bottom-line performance with a current EPS of 0.52.

Debt Management: With a below-average debt-to-equity ratio of 3.22, CarMax adopts a prudent financial strategy, indicating a balanced approach to debt management.

Valuation Overview:

• Price to Earnings (P/E) Ratio: The Price to Earnings ratio of 21.55 is lower than the industry average, indicating potential undervaluation for the stock.

• Price to Sales (P/S) Ratio: With a lower-than-average P/S ratio of 0.4, the stock presents an attractive valuation, potentially signaling a buying opportunity for investors interested in sales performance.

• EV/EBITDA Analysis (Enterprise Value to its Earnings Before Interest, Taxes, Depreciation & Amortization): CarMax's EV/EBITDA ratio stands at 18.32, surpassing industry benchmarks. This places the company in a position with a higher-than-average market valuation.

Market Capitalization Analysis: With an elevated market capitalization, the company stands out above industry averages, showcasing substantial size and market acknowledgment.

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The Relevance of Insider Transactions

While insider transactions should not be the sole basis for making investment decisions, they can play a significant role in an investor's decision-making process.

In the context of legal matters, the term "insider" refers to any officer, director, or beneficial owner holding more than ten percent of a company's equity securities, as outlined by Section 12 of the Securities Exchange Act of 1934. This includes executives in the c-suite and significant hedge funds. Such insiders are obligated to report their transactions through a Form 4 filing, which must be completed within two business days of the transaction.

Pointing towards optimism, a company insider's new purchase signals their positive anticipation for the stock to rise.

Despite insider sells not always signaling a bearish sentiment, they can be driven by various factors.

Unlocking the Meaning of Transaction Codes

Taking a closer look at transactions, investors often prioritize those unfolding in the open market, meticulously cataloged in Table I of the Form 4 filing. A P in Box 3 denotes a purchase, while S signifies a sale. Transaction code C denotes the conversion of an option, and transaction code A signifies a grant, award, or other acquisition of securities from the company.

Check Out The Full List Of CarMax's Insider Trades.

This article was generated by Benzinga's automated content engine and reviewed by an editor.