Auto Trader vs CarMax Which Is a Better Investment?

Auto Trader Group and CarMax are two leading companies in the automotive industry, each offering unique products and services to consumers. Auto Trader, based in the UK, is a digital marketplace for buying and selling new and used cars, while CarMax, headquartered in the US, is a retailer of pre-owned vehicles and automotive services. Both companies have experienced growth in recent years, but their stocks have performed differently in the market. Analyzing the performance of Auto Trader vs CarMax stocks can provide valuable insights for investors looking to navigate the automotive sector.

Auto Trader or CarMax?

When comparing Auto Trader and CarMax, different investors may prioritize various metrics based on their investment strategies and goals. So, ask yourself what type of investor you are. This will guide you in determining which metrics are most important for your investment decision between Auto Trader and CarMax.

Dividend Investors:

Dividend investors look for stable and growing income streams, using dividend metrics to assess potential investments. A company's dividend yield essentially measures the size of its dividend relative to the total market value of the company. Auto Trader has a dividend yield of 1.3%, while CarMax has a dividend yield of -%. Beyond the yield itself, considering the growth and sustainability of these dividends is also crucial. Auto Trader reports a 5-year dividend growth of 0.00% year and a payout ratio of 31.30%. On the other hand, CarMax reports a 5-year dividend growth of 0.00% year and a payout ratio of 0.00%.

Value Investors:

Value investors focus on financial metrics to determine a stock's intrinsic value compared to its market value. The Price-to-Earnings (P/E) Ratio links stock price to a company's earnings per share, with Auto Trader P/E ratio at 6.95 and CarMax's P/E ratio at 28.66. Another crucial valuation metric is the Price-to-Book (P/B) Ratio, which compares stock price with book value per share. Auto Trader P/B ratio is 3.23 while CarMax's P/B ratio is 1.94.

Growth Investors:

Growth investors prioritize metrics indicative of a company's expansion potential. Focusing on top-line growth, Auto Trader has seen a 5-year revenue growth of 0.56%, while CarMax's is 0.99%. Return on Equity (ROE) measures how effectively a company uses equity investment to generate earnings, with Auto Trader's ROE at 47.03% and CarMax's ROE at 6.83%.

Retail Investors:

Retail investors often consider stock affordability and company familiarity. For example, day low prices are $2.52 for Auto Trader and $75.63 for CarMax. Over the past year, Auto Trader's prices ranged from $2.04 to $3.00, with a yearly change of 47.06%. CarMax's prices fluctuated between $62.45 and $88.22, with a yearly change of 41.27%. Brand recognition also plays a role, as familiarity with a company can influence investment decisions.