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Why Used Car Retailers Could Be In For A Bumpy Ride

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Why Used Car Retailers Could Be In For A Bumpy Ride
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After a recent report in which Morgan Stanley analysts predicted that used car prices would endure an unprecedented decline in the coming years, the share prices of some used car merchants could be under pressure.

According to the report, the price of fill-sized used cars has declined year-over-year (YOY) for 39 consecutive months, and the YOY price decline in November for full sized cars was more than 20 percent. Analysts expect a similar trend in the future for other vehicle segments as well.

Related Link: Cars.com Chief Analyst Jesse Toprak New Vehicle Sales Forecast

Stock Watch: CarMax

The stock of used car retailer CarMax, Inc. (NYSE: KMX) is trading near all-time highs, and the company has been able to grow its earnings per share (EPS) by an average of over 50 percent annually the past five years.

However, with a price to earnings ratio (P/E) of over 24, the stock isn’t particularly cheap at current levels. Carmax’s long-term debt to equity ratio is also 2.4.

Stock Watch: America's Car-Mart

Another stock with potential exposure to falling used car prices is America’s Car-Mart, Inc. (NASDAQ: CRMT). With the stock up 20 percent year-to-date, America’s Car-Mart currently sports a P/E over 20 -- its highest in over five years.

Only time will tell if Morgan Stanley’s prediction will come to fruition, but it's an area worth watching.

Image credit: Laitr Keiows, Wikimedia

Latest Ratings for KMX

DateFirmActionFromTo
Apr 2017SusquehannaMaintainsPositive
Feb 2017Morgan StanleyDowngradesEqual-WeightUnderweight
Oct 2016Deutsche BankUpgradesHoldBuy

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