Copart: A market leader in an overlooked industry.

Peter Lynch once advised, "Invest in boring, mundane, and non-glamorous businesses." Copart exemplifies this principle. Specializing in the sale of damaged vehicles for repair or parts, Copart may not seem like an attractive investment at first glance. However, the company has demonstrated remarkable performance over its history. This analysis explores whether Copart is poised to continue its success in the future.

This is not a financial advice. I am not a financial advisor and I only do these posts in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that at the time of writing this analysis, I do not own any shares in Copart. If you would like to copy my portfolio or view the stocks in my portfolio, you can find instructions on how to do so here. I don't own shares in any of their competitors either. Thus, I have no personal stake in Copart. If you want to purchase shares (or fractional shares) of Copart, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Copart is a leading global provider of online vehicle auctions, specializing in the sale of damaged vehicles that can either be repaired or used for parts. Founded in 1982 by Willis Johnson in California, the company has expanded to operate in 11 countries, with buyers participating from around the world. Copart primarily serves insurance companies that sell total-loss or recovered stolen vehicles on its platform, though other clients include dealers, rental companies, charities, banks, and individual vehicle owners. Revenue is generated from fees related to various auction and transaction services, including vehicle processing, transportation, title preparation, storage, and loading. The company operates through two main segments: U.S. and International, reflecting its presence in North America and overseas markets like Canada, the U.K., Germany, and the UAE. In 2024, Copart’s U.S. segment contributed approximately 81,8% of revenue, with the International segment accounting for 18,2%. Copart’s early adoption of a fully online auction model in 2003 allowed it to reach a broad global buyer base, making it a first mover in this market segment and providing a significant competitive advantage. This extensive digital reach has created a network effect that benefits both sellers and buyers: a growing buyer base encourages more sellers to use the platform, which, in turn, attracts even more buyers due to the increased selection. As this cycle continues, Copart becomes increasingly attractive as a marketplace for vehicle sales, reinforcing its dominant industry position. Additionally, Copart’s ownership of around 90% of its operational land further strengthens its competitive edge, as the company is not reliant on leasing. Copart has a moat due to its network effect, land ownership stability, and early digital adoption.

Management

The CEO of Copart is Jeff Liaw. Jeff Liaw joined Copart as CFO in 2016 and became co-CEO in 2022, later transitioning to sole CEO in April 2024. Prior to Copart, Liaw served as CFO of Fleetpride, the largest independent distributor of aftermarket truck parts in the U.S., which was owned by TPG Capital, where he was a principal investor overseeing private equity investments in the financial services and industrial sectors. He holds a bachelor's degree in Finance and Business Administration from the University of Texas and an MBA from Harvard Business School. As co-CEO, he was mentored by former CEO Jay Adair, much like Jay Adair himself was mentored by Copart founder Willis Johnson. I appreciate that the former CEO mentored the new CEO, as it indicates that the new CEO will maintain Copart's culture. Reflecting this continuity, under Jeff Liaw, Copart has emphasized deploying nearly all of its capital into assets that drive best-in-class outcomes for its customers, such as acquiring more land and transportation assets to enhance service. Under Liaw's leadership, management has also reinforced that Copart's multi-decade investment horizon and longstanding capital allocation approach remain steadfast. Copart will continue to prioritize investments that grow and diversify its marketplace businesses, including differentiated products and service capabilities. This includes ongoing investments in yard infrastructure, which are essential to meeting long-term customer needs. Though Jeff Liaw has only recently become the sole CEO, I am confident in his ability to lead the company forward, as he continues to prioritize the same values as Copart’s previous CEOs.

The Numbers

The first number I will investigate is the return on invested capital, also known as ROIC. Ideally, you'd like to see a ROIC above 10% every year. Copart has delivered a ROIC above 10% each year for the last 10 years, achieving ROIC levels above 20% from 2016 to 2023. However, it dropped below 20% in fiscal year 2024. One reason for the decrease is that Copart acquired 1.100 acres of land in fiscal year 2024, which impacts ROIC negatively. While land acquisition involves high upfront costs, it should benefit the company in the long term. Therefore, I'm not concerned that ROIC reached its lowest levels since 2015 in fiscal year 2024, especially since Copart still achieved a ROIC above the 10% threshold. This ten-year history demonstrates that Copart is a strong company that consistently delivers a high ROIC. Thus, the Return on Invested Capital (ROIC) suggests that Copart possesses a competitive advantage and can be considered a compounder—a characteristic I value in an investment.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. Copart has had some years where equity declined, but since 2017, Copart has managed to increase its equity every year. Not only has equity increased annually for the past eight years, but it has also grown by more than 10% each year, which is impressive. Since 2017, Copart has been a textbook example of how you would like to see a company growing its equity..

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Copart has managed to deliver positive free cash flow every year for the past decade. Copart has increased its free cash flow every year since 2018, which is encouraging and demonstrates the strength of Copart's business model. Management has stated that their longstanding approach to capital allocation is unwavering, indicating that free cash flow is likely to continue growing moving forward. The levered free cash flow margin is slightly below its peak in fiscal year 2022, but it reached its second-highest level ever in fiscal year 2024 and increased from fiscal year 2023, which is also encouraging. However, the free cash flow yield indicates that shares are currently trading at a premium price, but this is something we will revisit later in the analysis.

Debt

Another important aspect to investigate is a company's debt. We need to determine if the business has a manageable level of debt that can be repaid within a 3-year period. This can be assessed by calculating the long-term debt-to-earnings ratio. After calculating this for Copart, I can see that Copart has no debt. I prefer companies that have no debt, so Copart continues to impress me based on its numbers.

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Risks

Like every other investment, there are risks associated with investing in Copart. One risk is customer concentration. Customer concentration is a risk for Copart because it depends heavily on a few major vehicle sellers for a substantial portion of its revenue. While no single seller accounted for over 10% of revenue recently, a small group of major sellers collectively contributes significantly. If even one of these key sellers were to terminate their agreement, Copart’s revenue and operations could be considerably impacted. This dependency makes Copart vulnerable to fluctuations, as the company has faced terminations in certain markets in the past that directly affected local revenue. Moreover, Copart’s growth relies on maintaining and increasing its vehicle supply. If it cannot secure new agreements or retain existing sellers, it risks limiting its supply, potentially reducing the diversity and quantity of vehicles available on its platform. This limitation could lead to slower revenue growth and reduced appeal to buyers seeking a broader selection.

Another risk is competition. Competition is a significant risk for Copart because it operates in a highly competitive vehicle remarketing industry, where it contends with numerous direct and indirect competitors for both vehicle supply and buyers. In the U.S. and internationally, Copart faces competition from large auction and vehicle remarketing companies, dismantlers, and even automobile manufacturers and auctioneers. Key competitors like Ritchie Bros., IAA, Carvana, and LKQ not only compete directly for vehicles from insurance companies but often have established relationships with major sellers, allowing them to bypass traditional auction channels or secure favorable long-term supply agreements. This competition can affect Copart's ability to secure vehicles and attract customers. Additionally, increasing "competitive tension" in certain vehicle segments—such as the low-value vehicle segment—indicates that some competitors might employ aggressive pricing or terms to win market share, potentially impacting Copart’s revenues and market position in these areas. The competitive environment is particularly tight in foreign markets with fewer vehicle sellers, like the U.K., where Copart risks losing share without secured long-term agreements. Competition also extends to securing vehicle storage facilities, which can drive up acquisition costs and limit Copart's expansion capabilities.

The trend toward safer cars presents a potential risk for Copart because its business relies on selling damaged vehicles, with most of its inventory coming from cars involved in accidents. As vehicles become safer, with the integration of technologies such as anti-lock brakes, traction control, autonomous braking, and lane departure warning systems, accident frequency has generally declined over the past several decades, especially when adjusted for miles driven. This trend suggests that as safety features advance, the number of total-loss vehicles could decrease, ultimately reducing the pool of damaged cars available for Copart’s auctions. Fewer damaged cars would mean fewer auction fees and lower overall revenue, impacting Copart's business model. Moreover, the uncertain trajectory of autonomous driving could further affect accident rates in the future. If self-driving technology matures and becomes widely adopted, it could significantly reduce accidents, potentially causing a substantial drop in the availability of damaged vehicles for Copart to auction. Historically, while accident frequency has declined, the rate of total-loss vehicles has grown faster due to the cost of repairs relative to vehicle value. However, as cars continue to become more resilient and smart technology addresses human errors, this balance might shift, leaving Copart with fewer total-loss vehicles to sell.

Reasons to invest

There are also numerous reasons to invest in Copart. Growth among non-insurance sellers is a compelling reason due to the diversification and additional revenue potential it brings. Copart’s expansion with non-insurance sellers, such as banks, rental car companies, corporate fleets, and dealers, allows the company to leverage its strengths in storage, logistics, and access to a global buyer base. This growth is reflected in strong year-over-year volume increases. These non-insurance units are attractive not only for their economic contributions to revenue but also for their role in enhancing auction liquidity. New buyers frequently enter Copart’s auctions through non-insurance vehicles, such as fleet or rental cars, and often go on to purchase insurance-sourced vehicles. This crossover effect broadens Copart’s buyer base, boosting demand and driving up auction prices across both insurance and non-insurance categories. The diversity of Copart’s non-insurance segments—ranging from consumer sellers in its "Cash for Cars" program to dealers and fleet operators—demonstrates the company’s flexibility in catering to different types of sellers and buyers. This growth among non-insurance sellers thus enhances Copart’s resilience, reduces its dependency on insurance clients, and positions the company for sustained, balanced growth, benefiting both operational stability and profitability.

Another reason is Title Express. Title Express is Copart’s specialized service for handling title procurement on behalf of insurance companies. Traditionally, insurance companies managed title transfers themselves, securing original titles from policyholders or lenders after a claims event. Title Express simplifies this process. Copart’s Title Express has reached a run rate of nearly one million title transfers per year, reflecting significant adoption among insurance clients. Title Express strengthens Copart's competitive position and deepens relationships with insurance clients. First, Title Express offers insurance companies a cost-effective alternative to in-house title management, saving time and reducing operational complexity. Additionally, Title Express positions Copart as a trusted, integrated partner rather than a simple auction platform, which enhances client loyalty and solidifies its market share. By handling this complex and often cumbersome process, Copart becomes invaluable to insurers, reducing their administrative burden and supporting smoother vehicle sales. The streamlined, efficient title procurement not only attracts more clients to Copart but also speeds up the sales cycle, increasing the pace at which vehicles move through auctions. Title Express thus contributes to Copart’s operational resilience and revenue growth.

Rising repair costs due to increasing vehicle complexity present a compelling reason to invest in Copart. With the advancement of sophisticated automotive technology, such as advanced driver assistance systems and other safety and convenience features, repair costs have surged. Modern vehicles often require specialized parts and labor, driving up repair expenses to the point where insurers are more inclined to declare vehicles as total losses rather than approve expensive repairs. For Copart, this trend translates into a growing supply of total-loss vehicles, as insurers look to sell these higher-cost-to-repair vehicles through auctions. The shift toward totaling vehicles rather than repairing them sustains a steady stream of inventory for Copart, bolstering its business model, which relies on a supply of salvage and total-loss vehicles. As vehicle manufacturers continue to innovate, adding complex and high-cost components, Copart is well-positioned to benefit from the continued increase in repair costs.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 1,40, which is from fiscal 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 19% in the next five years, but 15% is the highest number I use. Additionally, I have chosen a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on the fact that Copart has historically had a higher P/E ratio. Lastly, our minimum acceptable rate of return is already set at 15%. Doing the calculations, we come up with the sticker price (some call it fair value or intrinsic value) of $42,00. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Copart at a price of $21,00 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.473, and capital expenditures were 511. I attempted to analyze their annual report in order to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 358 in our calculations. The tax provision was 352. We have 962,967 outstanding shares. Hence, the calculation will be as follows: (1.473 – 358+ 352) / 962,967 x 10 = $15,23 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Copart's Free Cash Flow Per Share at $1,00 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $15,79.

Conclusion

I believe that Copart is a great company, and I really like the management as well. Copart achieved a ROIC below 20% for the first time since 2015 in fiscal year 2024, but this was due to land acquisitions. However, Copart managed to achieve its highest free cash flow ever and the second-highest levered free cash flow margin in fiscal year 2024, which is encouraging. Customer concentration is a risk for Copart because it relies heavily on a few major vehicle sellers for a large portion of its revenue, making it vulnerable to significant revenue impact if a key seller terminates their agreement. Competition is also a risk for Copart, as it operates in a crowded vehicle remarketing industry, facing direct rivals like Ritchie Bros., IAA, and Carvana, who compete for both vehicle supply and buyers. This intense competition, especially in tight markets and low-value segments, can pressure Copart's revenue and growth by limiting its ability to secure vehicle sources and maintain market share. Safer cars are another risk for Copart because as vehicles become more resilient and equipped with advanced safety technologies, accident frequency declines, reducing the pool of damaged or totaled vehicles available for auction. This trend could ultimately lower Copart's inventory and auction fees, impacting its revenue over time. Growth among non-insurance sellers is a strong reason to invest in Copart, as it diversifies revenue, enhances auction liquidity, and attracts a broader buyer base. Title Express is also a valuable reason to invest in Copart, as it provides insurance clients with an efficient, cost-effective title procurement service, strengthening client relationships and solidifying Copart’s market share. By handling this complex process, Copart reduces insurers' administrative burdens, accelerates vehicle sales, and positions itself as an indispensable partner. Rising repair costs, driven by increasingly complex vehicle technology, make Copart an attractive investment, as insurers are more likely to declare vehicles as total losses rather than fund expensive repairs. I believe there is much to like about Copart, and I plan to buy shares at $30, which aligns with the intrinsic values calculated by the Ten Cap price and Payback Time price, and is below the intrinsic value of the Margin of Safety price.

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