Critical Survey: CarMax (NYSE:KMX) versus Ross Stores (NASDAQ:ROST)

CarMax (NYSE:KMX) and Ross Stores (NASDAQ:ROST) are both consumer discretionary companies, but which is the better business? We will contrast the two businesses based on the strength of their valuation, analyst recommendations, dividends, profitability, risk, institutional ownership and earnings.

Profitability

This table compares CarMax and Ross Stores’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
CarMax	1.06%	7.76%	1.81%
Ross Stores	10.85%	39.29%	15.79%

Insider and Institutional Ownership

86.9% of Ross Stores shares are held by institutional investors. 1.0% of CarMax shares are held by insiders. Comparatively, 2.1% of Ross Stores shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Earnings & Valuation

This table compares CarMax and Ross Stores”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
CarMax	$27.63 billion	0.27	$247.29 million	$2.05	25.68
Ross Stores	$22.75 billion	3.12	$2.15 billion	$8.26	26.93

Ross Stores has lower revenue, but higher earnings than CarMax. CarMax is trading at a lower price-to-earnings ratio than Ross Stores, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of current recommendations and price targets for CarMax and Ross Stores, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
CarMax	3	14	2	0	1.95
Ross Stores	0	5	15	1	2.81

CarMax currently has a consensus target price of $56.46, suggesting a potential upside of 7.25%. Ross Stores has a consensus target price of $263.76, suggesting a potential upside of 18.59%. Given Ross Stores’ stronger consensus rating and higher probable upside, analysts plainly believe Ross Stores is more favorable than CarMax.

Risk & Volatility

CarMax has a beta of 1.23, indicating that its stock price is 23% more volatile than the S&P 500. Comparatively, Ross Stores has a beta of 0.83, indicating that its stock price is 17% less volatile than the S&P 500.

Summary

Ross Stores beats CarMax on 13 of the 15 factors compared between the two stocks.

About CarMax

CarMax, Inc., through its subsidiaries, operates as a retailer of used vehicles and related products in the United States. It operates in two segments: CarMax Sales Operations and CarMax Auto Finance. The CarMax Sales Operations segment offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; used vehicle auctions; extended protection plans to customers at the time of sale; and reconditioning and vehicle repair services. The CarMax Auto Finance segment provides financing alternatives for retail customers across a range of credit spectrum and arrangements with various financial institutions. The company was founded in 1993 and is based in Richmond, Virginia.

About Ross Stores

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brand names in the United States. Its stores primarily offer apparel, accessories, footwear, and home fashions. The company’s Ross Dress for Less stores sell its products at department and specialty stores to middle income households; and dd’s DISCOUNTS stores sell its products at department and discount stores for households with moderate income. Ross Stores, Inc. was incorporated in 1957 and is headquartered in Dublin, California.