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Shares of CarMax (KMX) fell almost 5% in Thursday's session despite the fact that the retailer of used cars beat analyst expectations in its fourth quarter.

Fourth Quarter Results

CarMax reported a 10% revenue increase to $2.48 billion, while net income came in at $95 million or $0.41 per share. The results came in slightly ahead of analyst expectations which estimated the company to report revenues of $2.41 billion and earnings of $0.40 per share.

Despite the earnings beat shares fell as same-store sales are down on the year driven by lower retail and wholesale prices. For the final three months of the year the company sold 105,769 used cars and 73,897 wholesale vehicles.

Valuation

The company ended its latest quarter with some $440 million in cash and $4.9 billion in long term debt as the company operates in a capital-intensive industry. Valued at roughly $7.5 billion the market values the business at 0.8 times annual revenue and 18 times earnings.

The valuation compares to AutoNation's (AN) 0.3 times annual revenue multiple and 18 times earnings. The entire industry has seen years of revenue growth and margin recovery as the recession was good news for the industry.

Investment Thesis

Shares of CarMax have risen from lows of $7 per share in 2009 to all time highs of $37 in 2011 as consumers were looking for bargains during the recessions years. Shares have seen a little pullback over the last year as lower supply of used cars pushed prices upwards and competition in the second-hand car market has increased.

With net margins having stabilized around peak levels of 4% shares are not interesting at this moment in time. Cheaper new models, higher gas prices and lower supply of used cars have diminished the attractiveness of investments in the entire industry, including in CarMax.

Source: CarMax: Similar To Second Hand Cars, Shares Have Already Seen Their Best