What a brutal six months it’s been for America's Car-Mart. The stock has dropped 44.7% and now trades at $11.98, rattling many shareholders. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in America's Car-Mart, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think America's Car-Mart Will Underperform?
Despite the more favorable entry price, we're cautious about America's Car-Mart. Here are three reasons you should be careful with CRMT and a stock we'd rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
America's Car-Mart’s demand has been shrinking over the last two years as its same-store sales have averaged 5.1% annual declines.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for America's Car-Mart, its EPS declined by 31.2% annually over the last three years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
Final Judgment
America's Car-Mart doesn’t pass our quality test. Following the recent decline, the stock trades at 21.3× forward EV-to-EBITDA (or $11.98 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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