Capitalizing on the Vehicle Online Auction Market: Copart Stocks

Imagine a friend asking you to invest in a business focused on car resale. If you’re not well-versed in this industry, you might hesitate. It’s true, that this venture can be lucrative, but success requires deep knowledge of market dynamics, pricing strategies, and consumer behavior. But these concerns are relevant until you learn about the CPRT stocks that are trading on the Nasdaq Exchange.

Copart, Inc. is a provider of online auctions and vehicle remarketing services. The company provides vehicle sellers with a full range of services to process and sell vehicles over the Internet through auction-style sales technology, being the world online vehicle auction leader.

Let’s focus on the core qualities of CPRT shares that stand out with an Eyestock Rating of 127%—exceeding our investment threshold by an impressive 27%. Before we delve into the specifics of Copart’s financials to uncover the pros and cons, it’s important to understand the business itself.

By providing auction services, the company brings together tens of thousands of sellers and buyers every day on its online platform. The main sellers are insurance companies and banks, whose balance sheets include damaged, written-off or seized cars, as well as fleet operators, dealers and car rental companies. The buyers are usually licensed companies for dismantling, restoring and repairing cars and also used car dealers. The service is also available to private individuals on both sides.

As an intermediary in the online resale of used cars, the company charges a commission ranging from 5% to 20%, depending on the type and price of the vehicle.»To support its activities, the company operates more than 20 storage and servicing facilities in the USA, as well as in Germany, Spain, Canada, Brazil and the UK. Since 2015, the company has been penetrating the Middle East market, presenting its services in Bahrain, Oman and the UAE.

Despite its global operations, Copart primarily serves the U.S. market, which generates 82.4% of its revenue, according to the company’s latest annual report. As a testament to its consistent performance, revenue over the last four quarters, as of January 31, 2024, has surpassed $4 billion—maintaining a remarkable stability with approximately $1 billion each quarter.

After a thorough analysis of the financial statements, we have assigned Copart an Eyestock Rating of 127%. On our scale, 100% represents an ideal investment, based on 10 business indicators (Learn more about our methodology). Copart impressively exceeds benchmarks in 9 out of these 10 metrics. Let’s highlight the key aspects of Copart’s financials. 

Copart investments — PROs

Copart’s financial performance metrics are exceptionally strong. Consider these figures:

• Net Profit Margin: 33%, which is 13% higher than the Eyestock benchmark.
• Earnings Quality: 103%, surpassing the benchmark by 3%.
• Gross Margin: 46%, 6% above the benchmark.

What do these numbers signify? At Eyestock, we analyze profitability metrics to gauge competitive advantages. Copart’s business model is not just effective—it’s outstanding. How else could a company retain $33 of net profit for every $100 of revenue?

In the realm of major players, Maheim Auctions stands out but remains privately held and thus out of reach for retail investors. Insurance Auto Auctions, which previously held an Eyestock Rating of 67%, was acquired by Ritchie Bros. Auctioneers Incorporated. This leaves Copart as the sole publicly traded option for retail investors seeking exposure in this industry.

Copart`s financial position is solid. The company’s debt is measured at half a million dollars, while its equity capital is almost $6.8B. Copart is a totally solvent and liquid business since current assets exceed short-term liabilities by 6 times.

Copart employs an exceptionally cautious approach to asset formation. With total assets of $7.6 billion and equity at $6.8 billion, a simple calculation reveals a financial leverage ratio of only 1.13, using a median value over two years. This indicates that nearly every dollar of assets is financed by equity.

This strategy is one of the most conservative among peers in the U.S. market, similar to approaches seen at Texas Pacific Land Corporation (TPL) which we wrote about here and Monster Beverage (MNST), the latter of which was detailed in our Energy Drink Companies Overview.
By the way, you can reproduce this table or build your own customized top based on 50 parameters available in our Advanced Stock Screener, including Eyestock Rating and Valuation.

At a minimum, this removes from us, investors, the extra risk of excess financing and insures against sharp drops in the return on equity ratio. And it is fine. With a return on assets (ROA) of 19%, the return on equity (ROE) is a significant 24%, which is 19.4% higher than the risk-free rate (US Treasury 5-year yield as of 24 Apr).

Copart investments — CONs

Copart’s revenue has maintained a steady pace, consistently hitting around $1 billion quarterly over the last four reports. However, stability in revenue doesn’t always equate to positive growth dynamics. The market thrives on development, and currently, Copart’s net profit growth rate is only 10%, with a noticeable downtrend in its average growth rate. Although volatility is decreasing, it remains relatively high. To evaluate the sustainability of growth, we measure the ratio of average growth rate to deviation; an ideal ratio is 1. Here, Copart falls short of this benchmark.

Despite these concerns, Copart’s business is currently valued at its peak on the market. As of April 23, the price-to-earnings ratio stands at 38.9 — its all-time high. This valuation suggests that the market holds an extremely positive outlook on Copart’s future prospects.

Warren Buffett’s wisdom reminds us that it’s preferable to buy outstanding companies at fair prices rather than ordinary companies at great prices. Our analysis identifies a ‘fair price’ level, marked in yellow on all charts, representing the average 5-year price-to-earnings ratio for Copart adjusted to current EPS at 31.8. Don’t miss the opportunity to learn Copart’s powerful valuation analysis by Eyestock relative value method.

Markets are subject to fluctuations, and while they can occasionally behave irrationally, our extensive research supports the notion that the best buying opportunities arise under such conditions. Our detailed analysis aims to identify these moments, ensuring investors can make informed decisions based on robust historical data and market trends.