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    Are CarMax’s (KMX) Lawsuits and Margin Cuts Rewriting Its Used-Car Growth Story?

    Simply Wall St·01/08/2026 22:31:10
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    • In recent months, multiple law firms have launched class action lawsuits and shareholder investigations accusing CarMax of overstating its growth prospects, while the company simultaneously announced leadership changes, price cuts, and margin reductions to revive used-vehicle sales.
    • These legal challenges and management shifts raise fresh questions about how much of CarMax’s earlier momentum reflected sustainable demand versus temporary tariff-driven buying.
    • Next, we’ll examine how these lawsuits and leadership changes might affect CarMax’s investment narrative, particularly its execution on margin cuts.

    Find companies with promising cash flow potential yet trading below their fair value.

    CarMax Investment Narrative Recap

    To own CarMax, you need to believe it can stabilize used-vehicle demand while protecting profitability as it cuts prices to win back volume. The new lawsuits and leadership changes introduce legal and execution uncertainty, but the more immediate catalyst remains whether short term margin reductions can actually reignite unit sales without further eroding already thin returns.

    The most relevant development here is CarMax’s plan to cut prices and margins while trimming US$150,000,000 of annual SG&A and boosting marketing. That initiative now sits under interim leadership and will likely be judged against allegations that prior growth was inflated by tariff-driven buying, sharpening the focus on how resilient the core business really is.

    Yet investors should be aware that, on top of these allegations, pressure on wholesale gross profit per unit could also...

    Read the full narrative on CarMax (it's free!)

    CarMax's narrative projects $29.8 billion revenue and $919.9 million earnings by 2028. This requires 1.3% yearly revenue growth and about a $361 million earnings increase from $558.5 million today.

    Uncover how CarMax's forecasts yield a $38.31 fair value, a 14% downside to its current price.

    Exploring Other Perspectives

    KMX 1-Year Stock Price Chart
    KMX 1-Year Stock Price Chart

    Five members of the Simply Wall St Community value CarMax between US$38.31 and US$99.80, highlighting sharply different expectations for its future. Set this against current concerns about compressed gross margins and consider how differently others may be assessing the company’s earnings resilience.

    Explore 5 other fair value estimates on CarMax - why the stock might be worth over 2x more than the current price!

    Build Your Own CarMax Narrative

    Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

    • A great starting point for your CarMax research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.
    • Our free CarMax research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate CarMax's overall financial health at a glance.

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    This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.