Here's What Affected CarMax (KMX) in Q3

Investment management company First Pacific Advisors recently released its third-quarter 2025 investor letter for the “FPA Source Capital.” A copy of the letter can be downloaded here. In the third quarter, the net asset value of the fund gained 4.59% and 13.76% for the trailing 12 months. Regarding the Fund's recent performance, over the past twelve months, Source’s top five equity performers added 4.82% to its return, whereas its bottom five detractors reduced it by 2.03%. Additionally, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, FPA Source Capital 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 16.75%, and its shares lost 55.48% of their value over the last 52 weeks. On December 05, 2025, CarMax, Inc. (NYSE:KMX) stock closed at $38.82 per share, with a market capitalization of $5.826 billion.

FPA Source Capital stated the following regarding CarMax, Inc. (NYSE:KMX) in its third quarter 2025 investor letter:

"CarMax, Inc. (NYSE:KMX), the largest retailer of used cars in the US, has been a disappointment. We entered 2025 with hopes that an improved omnichannel offering in an improving used vehicle market would drive increased sales volumes, market share, and profit growth. Instead, we ’ve watched management make a series of missteps. The company withdrew its 2030 unit sales targets at the beginning of the year, citing tariff impact five years from now — stated medium not particularly confidence related uncertainty expected to have little boosting , especially when their competitors retained their term goals. Management mistakenly expected their strong fiscal first quarter to continue. They overbought inventory at elevated prices, which they were then forced to work through in the seco causing them to lose market share. Investors have punished the company for its nd quarter, mistakes, and shares have declined by 47% year to date. Despite our disappointment in management's execution, the company's share price appears inexpensive to us. CarMax trades for roughly 12x forward consensus earnings and 1.1x tangible book value. Two independent directors bought shares in early October, seemingly supporting that view. The company also increased its share repurchase program, though we wish they would have held off on repurchases until the market was aware of the current disappointing news. We still believe that CarMax has built a differentiated used vehicle retail business and could see substantial share price improvement if the company rights itself, but operational execution needs to significantly improve."

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 Ariel Mid Cap Value Strategy's views on the company. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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