America's Car-Mart: Business Update
The stock has dropped 45% since quarterly earnings were released a month ago. Is the business model still intact or has Mr. Market overreacted?
This article is a follow-up to a business profile of America’s Car-Mart published on June 8. Business profiles are meant to be stand-alone articles rather than companies that will be regularly “covered” on a quarterly basis. However, on occasion, I will publish business updates when there are interesting developments.
To keep updates relatively brief and informal, I will avoid repeating content that can be found in the original profile. Readers who are interested in America’s Car-Mart should read the profile before reading this update.
Car-Mart’s Volatile Stock
Stock prices tend to move around far more than underlying business fundamentals. That’s certainly true when it comes to America’s Car-Mart. The long-term operating history of the company shows variability but nothing like the gyrations of the stock. As we can see from the five year chart, recent stock price volatility is nothing new:
Car-Mart’s stock approximately quadrupled between its pandemic lows in early 2020 and its highs of 2021. This year, the stock mostly declined before rallying sharply when fiscal 2022 full year results were announced in May. But the market intensely disliked the company’s Q1 fiscal 2023 results which were announced on August 17 and the stock dropped ~45% over the past month.
Let’s try to unpack what’s going on by forgetting about the stock price and looking at recent business results.
America’s Car-Mart’s fiscal year ends on April 30. The first quarter of fiscal 2023 ended on July 31, 2022 and the company released financial results on August 17. Rather than reiterating the narrative in the press release or looking at one quarter’s results in isolation, I decided to compile quarterly data for the past three fiscal years.
The following exhibit shows key operating metrics for Car-Mart since the quarter that ended on July 31, 2019. The purpose of presenting the data for three fiscal years is to see trends that took place prior to the pandemic as well as what has happened since.
Let’s drill down into several of these data points: