BY MARK SEBASTIAN
January 25th, 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
Over the last year we have seen Carvana go from 7 to over 60 and now back down to 42. Carmax…the ticker we are looking at this week has had zero participation in this rally…Is now the time to potentially jump in…let’s break down the fundamentals, the charts and the option pricing…
CarMax, Inc (Ticker: KMX).
Carvana has a valuation of 9.1 billion dollars on revenue of 11.18 billion dollars and losses of 5.87 a share over the last 12 months.
Carmax has a valuation of 10.39 billion dollars on revenue of 26.63 billion dollars and earnings of 3.14 per share.
One has a negative EPS, the other an EPS of 22.07.
The issue is that KMX Revenue has stopped going up….and might actually be on a down trend:
Carvana looks almost exactly the same
The starting point for this discussion is that KMX is a much more mature and financially stable company than CVNA. If you had to buy one…it should be KMX.
Yet over the last twelve months KMX is actually down while CVNA has almost seen its value quintuple (more than that at the top).
If you were to complain about one thing it is the amount of debt KMX has…it is carrying 18 billion in long term debt:
That is more than thrice that of CVNA … .when I look at KMX on the surface things look pretty good, but all that debt adds up to more than the value of the company.
Now I do not think KMX is going anywhere…but what I would say is that flat on the year does not appear to be the spot to scoop up the stock.
I am a buyer if the stock drops back toward year lows below 60…as an investment. For a trade though…maybe there is an opportunity here…this is where Licia’s charts come in.
CarMax (Ticker: KMX) was chosen this week as a request from one of our favorite (can we have favorites?) Pro Members.
You don’t need to be a favorite. Just email us at [email protected] and we will analyze your stock.
He said he was hearing troubling news at the car dealerships, which is sad to hear.
Correct me if I’m wrong but wasn’t this type of thing a precursor to the 2009 “financial crisis”?
Looking at the KMX chart, I am only seeing downside. Here is the zoomed out chart:
The stock was in a freefall for a year. From November 2021 until October 2022 it shed almost a hundred dollars trading from $152 to $58.
It has since traded in range from $58 to $87.
KMX has broken to the lower side of my support/resistance level and just traded back up to it and failed.
It closed at $67.45 on Wednesday. KMX looks to me to be on its way back down to $58
I am thinking a March put vertical would be in order.
KMX Vol looks good to use
KMX is looking weak here but also showing relatively high underlying volatility. As stated above, higher rates should dampen car prices. With a very strong market, KMX looks terrible. Normally higher volatility accompanies stocks that rip up and down. KMX just looks like one direction so there is little bid for options.
The IV is so low here, I would buy longer duration puts. Note the 90 day realized volatility (purple line) is still high, highs of the year to be exact. There is enough movement that owning options via straight puts or spreads should pay well.
6 month chart with IVs on the bottom
Mar/Feb Put Calendars are very inexpensive here and could pay big dollars down the road. Stop in on Monday to see which ones I like.
The Option Pit Team…
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Mark Sebastian
Founder & CEO, Option Pit
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