Valueline estimates that KMX's EPS in the years 2026-2028 will be $4.40.

Also, the median P/E of KMX in the last 10 years has been 18. If we assume that multiple to apply in 2026-2028 (which, in my view is a very optimistic assumption, given the growth rate of EPS from now to then), the expected price then will be $79.20, as against a current price of $74.66.


Here are their earnings for 2016-2019, the last 7 years before the 2020 panicdemic:

Year  Profit Sh o/s
2013  $493m  228m
2014  $597m  216m
2015  $623m  206m
2016  $627m  190m
2017  $664m  184m
2018  $842m  176m 
2019  $888m  165m
(2 years of great profits, not sustainable, let's ignore them)
2022  $485m  159m
Q12023 $69m  158m

What is a reasonable projection of their profit level in 3-5 years? If it is $4.40 per share, and if they have 130m shares outstanding in 4 years (2027), that would be $572m, or the same levels of profits they had 13 years prior. That is a possible outcome, but in the absence of any new structural problems affecting their business, and given their almost clockwork growth over the last 10-20 years, it strikes me as a very pessimistic projection. I think $1000m in profit is a lot more likely, and that mean their current market cap of $11.8b is about 12 times earnings 4 years from now. If they make $1500m in earnings in 4 years (on track with their pre-Covid trajectory), their current price would be just under 8 times earnings.

It's not a steal, by any means, but with strong growth, I think their median multiple of 18x earnings is very reasonable, and the company might well be worth $18b in 4 years, giving a return of 11% a year. Stronger growth is even more likely, I think, and share repurchases at today's good price (although repurchases are currently suspended) could make this a little better. I don't have a lot of investments where I am more confident of an 11%+ return.

Regards, DTB