Category: CRMT

CRMT – America's Car-Mart (CRMT) Moves to Strong Buy: Rationale Behind the Upgrade

America’s Car-Mart (CRMT Free Report) could be a solid addition to your portfolio given its recent upgrade to a Zacks Rank #1 (Strong Buy). This upgrade is essentially a reflection of an upward trend in earnings estimates — one of the most powerful forces impacting stock prices.

The sole determinant of the Zacks rating is a company’s changing earnings picture. The Zacks Consensus Estimate — the consensus of EPS estimates from the sell-side analysts covering the stock — for the current and following years is tracked by the system.

Individual investors often find it hard to make decisions based on rating upgrades by Wall Street analysts, since these are mostly driven by subjective factors that are hard to see and measure in real time. In these situations, the Zacks rating system comes in handy because of the power of a changing earnings picture in determining near-term stock price movements.

As such, the Zacks rating upgrade for America’s Car-Mart is essentially a positive comment on its earnings outlook that could have a favorable impact on its stock price.

Most Powerful Force Impacting Stock Prices

The change in a company’s future earnings potential, as reflected in earnings estimate revisions, has proven to be strongly correlated with the near-term price movement of its stock. The influence of institutional investors has a partial contribution to this relationship, as these big professionals use earnings and earnings estimates to calculate the fair value of a company’s shares. An increase or decrease in earnings estimates in their valuation models simply results in higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their bulk investment action then leads to price movement for the stock.

Fundamentally speaking, rising earnings estimates and the consequent rating upgrade for America’s Car-Mart imply an improvement in the company’s underlying business. Investors should show their appreciation for this improving business trend by pushing the stock higher.

Harnessing the Power of Earnings Estimate Revisions

Empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements, so it could be truly rewarding if such revisions are tracked for making an investment decision. Here is where the tried-and-tested Zacks Rank stock-rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions.

The Zacks Rank stock-rating system, which uses four factors related to earnings estimates to classify stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here >>>>.

Earnings Estimate Revisions for America’s Car-Mart

For the fiscal year ending April 2022, this auto retailer is expected to earn $13.34 per share, which is a change of -10.8% from the year-ago reported number.

Analysts have been steadily raising their estimates for America’s Car-Mart. Over the past three months, the Zacks Consensus Estimate for the company has increased 12.7%.

Bottom Line

Unlike the overly optimistic Wall Street analysts whose rating systems tend to be weighted toward favorable recommendations, the Zacks rating system maintains an equal proportion of ‘buy’ and ‘sell’ ratings for its entire universe of more than 4000 stocks at any point in time. Irrespective of market conditions, only the top 5% of the Zacks-covered stocks get a ‘Strong Buy’ rating and the next 15% get a ‘Buy’ rating. So, the placement of a stock in the top 20% of the Zacks-covered stocks indicates its superior earnings estimate revision feature, making it a solid candidate for producing market-beating returns in the near term.

You can learn more about the Zacks Rank here >>>

The upgrade of America’s Car-Mart to a Zacks Rank #1 positions it in the top 5% of the Zacks-covered stocks in terms of estimate revisions, implying that the stock might move higher in the near term.

CRMT – America's Car-Mart (CRMT) Q4 Earnings and Revenues Beat Estimates

America’s Car-Mart (CRMT Free Report) came out with quarterly earnings of $6.19 per share, beating the Zacks Consensus Estimate of $2.69 per share. This compares to earnings of $1.35 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 130.11%. A quarter ago, it was expected that this auto retailer would post earnings of $2.38 per share when it actually produced earnings of $2.85, delivering a surprise of 19.75%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

America’s Car-Mart, which belongs to the Zacks Automotive – Retail and Whole Sales industry, posted revenues of $279.08 million for the quarter ended April 2021, surpassing the Zacks Consensus Estimate by 22.62%. This compares to year-ago revenues of $195.69 million. The company has topped consensus revenue estimates four times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

America’s Car-Mart shares have added about 33.6% since the beginning of the year versus the S&P 500’s gain of 10.6%.

What’s Next for America’s Car-Mart?

While America’s Car-Mart has outperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for America’s Car-Mart was mixed. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $2.70 on $217.48 million in revenues for the coming quarter and $11.84 on $921.7 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Automotive – Retail and Whole Sales is currently in the top 8% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

CRMT – America's Car-Mart (CRMT) Surpasses Q2 Earnings and Revenue Estimates

America’s Car-Mart (CRMT Free Report) came out with quarterly earnings of $3.05 per share, beating the Zacks Consensus Estimate of $2.28 per share. This compares to earnings of $2 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 33.77%. A quarter ago, it was expected that this auto retailer would post earnings of $1.48 per share when it actually produced earnings of $2.83, delivering a surprise of 91.22%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

America’s Car-Mart, which belongs to the Zacks Automotive – Retail and Whole Sales industry, posted revenues of $223.36 million for the quarter ended October 2020, surpassing the Zacks Consensus Estimate by 3.04%. This compares to year-ago revenues of $190.31 million. The company has topped consensus revenue estimates four times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

America’s Car-Mart shares have lost about 11% since the beginning of the year versus the S&P 500’s gain of 11%.

What’s Next for America’s Car-Mart?

While America’s Car-Mart has underperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for America’s Car-Mart was favorable. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #2 (Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $2.04 on $211.90 million in revenues for the coming quarter and $9.91 on $835.19 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Automotive – Retail and Whole Sales is currently in the top 3% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.