Has KMX Stock Been Good for Investors?

Forget about being stuck in neutral: With CarMax (NYSE: KMX), the key issue is that the stock continues to go in reverse. Over the past 12 months alone, shares in the used car retailer are down roughly 56%.

Worse yet, the stock has performed just as poorly over a multiyear time frame. Various factors are to blame, both industry- and company-specific. The question now, however, is whether this long streak of lackluster returns is a warning sign to stay away, or an opportunity waiting in plain sight.

That is, depending on whether recent developments result in the implementation of an effective turnaround, the stock may just well buck the trend and enter a period of strong price performance.

Image source: Getty Images.

CarMax versus the S&P 500

As seen in the table below, CarMax has delivered horrendous returns, both on an absolute basis, and especially relative to the performance of the S&P 500 stock market index, over the past year, the past three years, and the past five years:

Source: YCharts. Data is current as of Nov. 26, 2025.

Admittedly, CarMax's underwhelming underperformance over each of these periods is not surprising. Since the early 2020s, the used car market has experienced many headwinds, including squeezed gross margins and falling demand due to high vehicle prices.

As a result, CarMax's revenue and earnings have dropped sharply. That said, industry-specific issues are just part of the story behind this stock's steep decline. High competition from digital-first competitors like Carvana (NYSE: CVNA) has likely affected fiscal performance as well.

Despite market challenges, Carvana has made a tremendous comeback, going from the brink of bankruptcy in early 2023 to steady profitability by 2024 and 2025, resulting in the stock bouncing back around 100-fold from its lows.

Still, don't hit the brakes just yet

While investing in the S&P 500, or better yet, Carvana shares, would have been a better investment than CarMax in recent years, don't assume this means you should hit the brakes on this stock if you own it or are considering whether to buy it today.

For CarMax shares, the latest round of declines has come following the release of worse-than-expected guidance, plus the unexpected resignation of CEO Bill Nash (announced on Nov. 4 and effective Dec. 1). The company has not yet named Nash's permanent successor. However, prior to Nash's resignation, CarMax did begin to implement a turnaround, one that included targeted cost savings of $150 million over the next 18 months.

While not certain, if these improvements are coupled with improved demand over the coming calendar year, CarMax could resume reporting improved results. Even if these are slight improvements, and only slowly arrive during 2026 and 2027, shares could rally on improved earnings and valuation expansion. Currently, shares trade at a forward P/E ratio of only 10. Historically, shares have most often traded for between 15 and 20 times earnings.

Don't get me wrong. You may not necessarily want to run out and buy CarMax today. However, in the months ahead, if initial signs emerge that a turnaround is indeed taking shape, you may want to start building up a long-term position in this name. Improved profitability, coupled with valuation expansion, could result in shares entering a period of market-beating returns once again.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CarMax. The Motley Fool has a disclosure policy.