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 CarMax (NYSE: KMX) was down 5% over the past week despite posting stellar EPS results. Fiscal 1Q revenue was up 19% year-over-year and surpassed consensus EPS by 10%. With a beta of 1.5, the car retailer has been dragged down with the broader market, but it appears the stock is positioned to pop with a rebound in auto buying. 

During the last fiscal quarter, CarMax sold some 137,000 vehicles, which was a 22% increase over the same period last year. The average selling price was also up 1.3% to $19,540. 

Quick overview

CarMax acquires used-vehicles directly from consumers via an in-store appraisal process, including local and regional auctions. In fiscal 2013, used vehicles accounted for almost 80% of revenue, wholesale vehicles 16% and new vehicles only 2%.

CarMax is also getting aggressive on the expansion front. The company already has over 100 lots in the U.S., with a concentration in the Southeastern part of the country, and plans to open between 10 and 15 stores in each of the next two years. 

The comps

CarMax has a stronghold in the used-vehicle market, owning nearly 14% of the market share; however, one of the concerns is that the margins for used vehicles will be compressed over the interim. Used-car margins are under pressure as the new vehicle manufacturers , such as GM and Ford, look to stay competitive and boost sales by cutting prices. 

AutoNation (NYSE: AN)) is the largest U.S. auto dealer, owning and operating more than 260 new-vehicle franchises in 15 states. AutoNation has a solid mix among vehicles sales, with domestic vehicles accounting for over 30% of revenue, imports 50% and premium luxury accounting for 18%. 

As well, AutoNation has a much better mix of vehicle sales among new versus used cars, as opposed to CarMax. AutoNation gets around 55% of revenue from new vehicle sales, 24% from used vehicles and 15% from parts and services.

If there is one downside to AutoNation, it's the heavy concentration of stores in the Sunbelt area. Over 75% of its locations are concentrated in the region, with 50% in California and Florida alone. The car company also recently acquired two stores in Phoenix and one in Texas that together generate some $250 million in revenue -- which is over 1.6% of AuotNation's 2012 revenue. 

Group 1 Automotive (NYSE: GPI) owns and operates car dealerships and franchises in the U.S. and the U.K. Unlike CarMax and AutoNation, Group 1 does have international exposure, and it's looking to gain more. This includes its early 2013 acquisition of four London dealerships and 22 Brazilian dealerships. 

Last month, the company posted EPS of $1.16 for 1Q, well above the $0.97 for the same quarter last year. After the positive earnings, analysts boosted their consensus EPS by 1.5% and 2014 by 1%, while consensus also shows an expected 17% bump in year-over-year revenue for 2013. 

Worth noting is that Group 1 has fairly high exposure to Toyota, whose vehicles account for over 30% of revenue. Another downside for Group 1 is that its profit margin has under-performed its peers over the past few years, with Group 1 managing to only convert about 1% of revenue into profits over the trailing-12 months. 

Hedgie sentiment

Going into 2013, there were a total of 22 hedge funds long AutoNation, a 38% increase from the previous quarter. This includes billionaire Eddie Lampert's ESL Investments, with a $1.4 billion position that made up 35% of its 13F portfolio; quite the conviction Mr. Lampert has (check out ESL's top stocks).

CarMax saw 21 hedge funds long the stock going into the second quarter, which was a 25% decrease from the previous quarter. Markel Gayner Asset Management had the top position, worth some $213 million and making up 7.9% of its portfolio (see Markel's newest picks).

The hedge fund interest in Group 1 was only 20 hedge funds heading into 2Q, but this was a 54% increase from the previous quarter. Clint Carlson had the largest position, but it was worth only $33 million (check out Carlson's small cap stocks).

Bottom line

It's no secret that auto retailers are expected to see an impressive uptick from pent-up demand and an improving economy; question is, which is the best industry player? 

Based on its exposure to new car sales versus used cars, I tend to like AutoNation the best. AutoNation has been improving its return on equity, surpassing CarMax in mid-2012. AutoNation now boasts a near 20% ROE, compared to CarMAx's 15.5%

What's more is that on a price-to-earnings-to-growth (PEG) ratio basis, AutoNation is quite the growth-at-a-reasonable-price opportunity. AutoNation has a low 0.5 PEG, compared to Group 1's 2.0 and CarMax's 1.7.

As a result, I like AutoNation the best, but CarMax should continue to perform well. The positive for Group 1 investors is that it does pay a dividend yield, albeit only a modest 1% .