Why CarMax Stock Just Crashed
Key Points
CarMax appointed InterContinental Hotels Group head Keith Barr as its new CEO today.
CarMax's sales have been slumping for three long years, and are in need of a turnaround.
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Wow. What's the opposite of a "vote of confidence?" A vote of no confidence, perhaps? Because that seems to be the way investors are voting on CarMax's (NYSE: KMX) decision to appoint a new CEO this morning:
Interim CEO David McCreight is out, former InterContinental Hotels Group (NYSE: IHG) head Keith Barr is in as CarMax CEO -- and the stock's down 12% as of 1:05 p.m. ET.
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Image source: Getty Images.
Congratulations on your new car CEO!
CarMax broke the news this morning, announcing McCreight will return to his previous position as an independent director on the company board. Replacing him is not a "car guy," but instead an import from the hotel industry.
CarMax describes Barr as "a proven leader who has driven transformational growth and operational excellence across large-scale, consumer-centric businesses," boasting "decades of leadership experience and proven ability to enhance the customer experience, lead digital transformations, build brand loyalty, and effectively integrate online and physical properties."
After three straight years of declining sales, the board of directors must think that what CarMax needs is a transformation. Investors in the automotive retailer, however, might not appreciate CarMax expressing poor self-image quite so clearly.
Is CarMax stock a sell?
Barr takes over a business in decline, with sales and profits both deteriorating year over year. The good news is that, with a market capitalization of $5.9 billion and trailing earnings of $458 million, investors already aren't expecting much from CarMax. With a price-to-earnings ratio of less than 13, even low-double-digit growth should be enough to turn around this used car dealer and make it a steal of a deal.
The bad news is that most analysts think the best CarMax can do over the next five years is grow at about 7%.
Fingers crossed that Barr can change that.
Should you buy stock in CarMax right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CarMax. The Motley Fool recommends InterContinental Hotels Group Plc. The Motley Fool has a disclosure policy.
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