CarMax (KMX) shares tanked 20% on Thursday after the Richmond-headquartered company recorded disappointing financials for its Q2, reflecting broader challenges of the used car market.

The used vehicle retailer earned $0.64 a share in its fiscal second quarter, falling substantially short of $1.03 that analysts had forecast, while revenue also declined by 6% on a year-over-year basis.

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Following today’s carnage, CarMax stock is down an alarming 50% versus its year-to-date high.

While CarMax earnings revealed a long list of challenges from retail weakness to pressure on auto finance, KMX stock isn’t entirely out of reasons to warrant selective optimism.

The company’s management has responded proactively to deteriorating financials, announcing a $150 million cost-cutting initiative, demonstrating commitment to operational efficiency.

Moreover, the NYSE-listed firm continues to generate solid unit margin with gross profit of $2,216 per retail used unit in the second quarter.

KMX repurchased $180 million worth of its shares in Q2 and maintains an aggressive buyback program for the remainder of its financial year, which makes CarMax shares even more attractive as a long-term holding.

Investors could consider buying the post-earnings weakness in CarMax shares also for the success the company has achieved in digital transformation.

About 80% of its unit sales are now supported by digital capabilities, positioning KMX particularly well for future growth. A strong balance sheet with an improved net leverage ratio of 1.5x provides some stability during this challenging period as well.

KMX shares are going for 15x earnings at writing, suggesting potential value for patient investors. Today’s selloff has priced in significant risks, with an RSI at 20.24 indicating oversold conditions.

This represents an attractive entry point for long-term investors willing to absorb near-term volatility.

What’s also worth mentioning is that Wall Street remains bullish as ever on CarMax stock for the next 12 months.

The consensus rating on KMX shares remains at “Moderate Buy” with the mean target of roughly $80 indicating potential upside of nearly 80% from here.

This article was generated with the support of AI and reviewed by an editor. On the date of publication, the editor did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com