Is CarMax (KMX) Facing Cyclical Weakness?

Ariel Investments, an investment management company, released its “Ariel Mid Cap Value Strategy” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. US equities continued their rally in the third quarter, fueled by the Federal Reserve's initial rate cut of the year, strong corporate earnings growth, and increased market participation. In the quarter, Ariel Mid Cap Value Composite returned +9.62% gross of fees (+9.47% net of fees) against this backdrop, significantly outperforming the +6.18% gain of the Russell Midcap Value Index and the +5.33% return of the Russell Midcap Index. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Ariel Mid Cap Value Strategy highlighted stocks such as CarMax, Inc. (NYSE:KMX). CarMax, Inc. (NYSE:KMX) is a used vehicle retailer headquartered in Richmond, Virginia. The one-month return of CarMax, Inc. (NYSE:KMX) was -8.77%, and its shares lost 54.84% of their value over the last 52 weeks. On November 27, 2025, CarMax, Inc. (NYSE:KMX) stock closed at $38.20 per share, with a market capitalization of $5.733 billion.

Ariel Mid Cap Value Strategy stated the following regarding CarMax, Inc. (NYSE:KMX) in its third quarter 2025 investor letter:

"Alternatively, CarMax, Inc. (NYSE:KMX), a leading used and wholesale vehicle auction operator, was the largest performance detractor during the period, following disappointing earnings resulting from lower unit sales and increased loan loss provisions. Management cited normalized demand after customers sought to buy in advance of potential tariffs last quarter. The rise in provisions was concentrated in pandemic-era loans, which have underperformed, while newer vintages are tracking in-line with expectations indicating the credit deterioration is largely contained. We view the weakness as cyclical, reflecting broader macroeconomic and industry volatility rather than structural concerns. As the market share leader in used vehicles, we believe CarMax’s scale and omnichannel capabilities position it well for long term growth once conditions stabilize."

CarMax, Inc. (NYSE:KMX) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 54 hedge fund portfolios held CarMax, Inc. (NYSE:KMX) at the end of the third quarter, the same as in the previous quarter. CarMax, Inc. (NYSE:KMX) reported total sales of $6.6 billion in the fiscal second quarter of 2026, a 6% decline from last year due to lower volume. While we acknowledge the potential of CarMax, Inc. (NYSE:KMX) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered CarMax, Inc. (NYSE:KMX) and shared the list of stocks Jim Cramer discussed recently. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money.

Disclosure: None. This article is originally published at Insider Monkey.