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About Copart
America is still the land of opportunity, believe it or not.
For instance, if someone can start their early career as grocery worker at a Safeway while also working for their dad’s scrapyard, shortly thereafter venturing out on their own through purchasing a single lot in Vallejo, California and starting a business in said lot that has since turned into multibillion-dollar empire, turning said former grocery worker into a billionaire, it is exceedingly difficult and almost plain ignorant to assert that this isn’t the land of opportunity.
Nevertheless, if you don’t think America is still the land of opportunity, we simply suppose you just aren’t looking for the opportunities in the first place.
At any rate, this is a true story about Willis Johnson, the founder of Copart, one of the world’s largest, most well known online automobile auction venues, a platform through which pretty much anyone can either put their car up for sale and have others bid on it or bid for a new set of wheels themselves within the confines of the listings on the company’s website.
In brief, this is how Copart’s platform works.
Let’s say I was fresh out of school and in the market for a used Honda Accord.
If I didn’t want to haggle with an in-person dealer, I could simply go to Copart’s website, type in “Honda Accord” and within seconds thousands upon thousands of Hondas appear with the option to bid for the vehicle or, in some cases, simply buy the car outright, and, of course, there are details upon details with respect to the vehicle such as make and model, mileage, location and other pertinent specifications once can filter through in their personalized car bidding and eventual buying journey.
The company itself acquires vehicles from car dealerships, insurance companies, rental car operators and others.
With that, it only makes sense that this middleman generates much of its revenues through the fees it charges those that sell the cars to Copart based on its sale price, also, on the other half of the transaction, charging those that bid for the vehicle in order to simply participate in auctions.
While this company has historically done a lot of in-person auctions, it is safe to say that Copart has pivoted quite well into the digital realm, which likely cuts some costs such as labor and overhead that it would otherwise be assuming if the majority of its auctions were still live and on location.
Although we haven’t always been the rosiest when it comes to companies operating within the vehicle sale market(s), we think Copart has some solid differentiators in that it is simply in the business of being a marketplace that connects bidders/buyers and sellers and not so much in the cost intensive logistics or freight business(es), however, the car market is still rather cyclical which will surely induce a bit of strain on a company such as Copart, but, we would venture to say that given the relatively low pricing model and nature of the online auction space as it relates to vehicles (especially used vehicles), this company has done a fair job at insulating itself from pressures that others in this category might face.
All of this being said, let’s take this opportunity to learn more about Copart and its core financial figures, ratios and other relevant metrics in hopes of gaining a clearer picture of this company’s stock (NASDAQ: CPRT) as a potential investment opportunity.
Copart’s stock financials
With a market capitalization of $45.01 billion, a share price of $47.01, a current price-to-earnings (P/E) ratio of 47.78 along with no annually distributed dividend offered to its shareholders as of this writing, Copart isn’t off to the hottest of starts, as this preliminary information suggests that the company’s stock (NASDAQ: CPRT) is trading at a relative premium with respect to its actual, intrinsic value, as its price-to-earnings ratio is more than double than that of the commonly held fair value benchmark of 20.
For all we know, however, it might be worth paying a premium for, however, we doubt it since this is already a seasoned, well established company that isn’t probably experiencing all that much growth.
Of course, we don’t mind admitting that we could be wrong in making such an assumption, so let’s continue digging to figure the rest of Copart out.
According to the company’s balance sheet (as displayed on TD Ameritrade’s platform), Copart’s executives are managing around $6.7 billion in terms of total assets as well as $750 million in terms of total liabilities, portraying an overall sensationally structured, total asset-heavy balance sheet, indicating that this company’s in a fortress-like condition and isn’t seemingly going out of business (at least due to being overleveraged) anytime soon.
Additionally, this company has approximately $2.3 billion in terms of cash and short-term investments, which is a wonderful sign, putting on full display that this company has a lot of cash at its disposal and can thus continue growing its business internally but also through acquisitions of other smaller, regional vehicle auction houses across the United States, which is a great, steady way to perhaps grow its revenues.
Speaking of the company’s revenue, Copart’s revenues since 2019 have been growing at a steady rate, kicking itself off at just north of $2 billion, making its way to $2.2 billion the following year, rising to nearly $2.7 billion in 2021, leading all the way up to its latest reported total annual revenue figure of $3.87 billion, as reported in late July 2023.
It seems as though the gradual digitalization of automobile auctions has been quite the tailwind for Copart, especially during and following the public onset of COVID-19 as car bidders, buyers and sellers became more and more accustomed to ditching the dealership or junkyard and instead opted to push their tin over the internet as they might’ve been practically forced to do so and/or have found it to be considerably more convenient and efficient.
Regardless of reason, revenues have been trending in the right direction for this well established (yet seemingly growing) vehicle auction house platform.
As it relates to the company’s cash flow statement, Copart’s net income has also been growing from a base of $592 million in 2019 to its latest reported figure of around $1.2 billion in 2023, not to mention the fact that its total cash from operations have been trending to the upside as well, climbing each year from a relative low of $647 million (2019) to its most recent high of $1.3 billion (2023).
It appears as though this company does an excellent job when it comes to generating cash through its operations, which generally makes sense since this company is a platform that takes transaction cuts from both bidders (buyers as well) and sellers of somewhat expensive pieces of equipment and we presume Copart’s expenses are relatively low, at least, with respect to its revenues.
Copart’s stock fundamentals
Onto the nitty gritty of Copart’s profitability and how it measures up with the competition (on average), according to the figures displayed on TD Ameritrade’s platform, Copart’s trailing twelve month (TTM) net profit margin sits at a healthy 31.99% whereas the industry’s respective average sits well below at 0.27%, hardly making any sort of (net) profit.
This is likely a result of a handful of factors, however, we suspect market share and consistent, strategic regional acquisitions are a large part of this company’s comparable TTM net profit margin success, as it has likely been able to buy regional competitors and seamlessly integrate said competitors into its system, and if this is true, for not an arm and a leg in terms of cost.
Additionally, it could also have to do with Copart being an established, trusted company in the vehicle auctioneering space, which can evidently pay dividends, as reputation is more than likely critical in this segment of the automotive space.
At the end of the day, this is a huge discrepancy favoring, of course, Copart.
Onto the company’s TTM returns on assets and investment(s), TD Ameritrade’s platform also has Copart’s figures in these respects in more than healthy states, with, for example, the company’s TTM return on assets standing at 20.55% with its competition’s average at 6.3%, which isn’t all too bad, however, when pinning it up against Copart’s, the difference is material and it appears as though the company has historically done a fine job in generating returns from the assets it employs across the United States.
Should you buy Copart stock?
We frankly think it is sort of messed up that more folks aren’t talking about this company.
Sure, it isn’t a technology company or AI company, per se, however, we’ll enjoy taking a look into an established, efficient and growing company any time of the day.
Founded in 1982, Copart’s core financials are in a very good space, with its balance sheet in a notably total asset-heavy state, its revenues growing before, throughout and following COVID-19, not to mention its growing net income and total cash from operations figures (specifically since 2019), its TTM net profit margin is wildly more impressive than that of the industry’s average, as are the company’s TTM returns on assets and investments.
Nevertheless, we sadly don’t deem this company’s present valuation to be aligned well enough with its growth.
In other words, it is our perspective that Copart’s share price (NASDAQ: CPRT) has gotten a bit ahead of its actual, intrinsic value, as although it is certainly growing its revenues at a great rate, the rate isn’t quick enough to justify overpaying over twenty points above the standard, fair value benchmark price-to-earnings ratio.
Thus, we deem it most appropriate to stick this company’s stock with a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.