Investors have a choice between two stocks — CarMax (KMX) and AutoNation (AN) — who operate in different markets. KMX is the country’s largest retailer of used cars with 126 used car superstores in 63 markets. AN is America’s largest automotive retailer with 267 new vehicle franchises in 15 states.
So, do you go for new or used? That age-old question of car buying also applies when it comes to stocks. While the past doesn’t dictate the future, KMX stock has achieved a total return year-to-date through December 17 of 38% — 13 percentage points higher than AN. In fact, it has outperformed AN in six of the last 11 years, and KMX has beaten AN over the past 15 years by 15 percentage points on an annualized basis.
As people start replacing their old clunkers (the average age of cars on the road is around 11 years), Auto Nation is bound to benefit given its position within the new car marketplace. However, with cars getting so expensive, consumers will likely look to late-model used cars to fill the breech. Still, even though AN gets a commission for placing a client with one of its financial institution partners, it doesn’t get 5% interest annually for the length of the car loan. KMX does.
KMX better controls the buyer experience, keeping financing in-house. That makes KMX the better stock to own.