Copart, Inc.

Date: August 09, 2024.

Company’s Profile

Overview

Copart Inc. (CPRT) is a global leader in online vehicle auctions, specialising in wrecked, damaged, and used vehicles. They operate online marketplaces in 11 countries, including the US, Canada, and several European nations, facilitating the buying and selling of these vehicles to a network of automotive resellers.

Competition

Copart, Inc. operates within the Diversified Support Services industry, which is composed by:

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

The Company’s Comparison of total net revenues by segment from 2019 till 2023:

Financial Performance

Revenues

Revenues from 2020 to 2023:

• CPRT’s annual revenue for 2023 was $3.87B, a 10.53% increase from 2022.
• CPRT’s annual revenue for 2022 was $3.5B, a 30.02% increase from 2021.
• CPRT’s annual revenue for 2021 was $2.69B, a 22.08% increase from 2020.
• CPRT’s annual revenue for 2020 was $2.21B, a 8.01% increase from 2019.

The yearly revenue from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Net Income

Net Income from 2020 to 2023:

• CPRT’s annual net income for 2023 was $1.24B, a 13.54% increase from 2022.
• CPRT’s annual net income for 2022 was $1.09B, a 16.4% increase from 2021.
• CPRT’s annual net income for 2021 was $0.94B, a 33.8% increase from 2020.
• CPRT’s annual net income for 2020 was $0.7B, a 18.29% increase from 2019.

The yearly net income from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

EPS

EPS from 2020 to 2023:

• CPRT’s annual EPS for 2023 was $1.3B, a 13.04% increase from 2022.
• CPRT’s annual EPS for 2022 was $1.15B, a 16.16% increase from 2021.
• CPRT’s annual EPS for 2021 was $0.99B, a 32% increase from 2020.
• CPRT’s annual EPS for 2020 was $0.75B, a 17.19% increase from 2019.

The yearly EPS from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Free Cash Flow

Free Cash Flow from 2020 to 2023:

• CPRT’s annual free cash flow for 2023 was $0.85B, a 0.99% increase from 2022.
• CPRT’s annual free cash flow for 2022 was $0.84B, a 58.98% increase from 2021.
• CPRT’s annual free cash flow for 2021 was $0.53B, a 61.98% increase from 2020.
• CPRT’s annual free cash flow for 2020 was $0.33B, a 19.49% increase from 2019.

The yearly free cash flow from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Financial Strength

Assets/Liabilities

Copart boasts an exceptionally strong financial position. Their asset-to-liability ratio of 9.84 falls significantly above the good range, indicating their assets vastly exceed liabilities. This financial fortress provides them with a tremendous safety net and flexibility for future endeavors.

Current Ratio

Similarly, its current ratio of 7.36 is outstanding, meaning they have more than enough readily available resources to cover all their short-term obligations. This ensures smooth operations and financial stability.

Net Debt

The debt situation is remarkable. Copart has a negative net debt of -$2.98 billion. This essentially means they have more cash on hand than total liabilities. This provides them with a significant financial advantage and eliminates concerns about debt burden.

Shares Outstanding

The decrease in outstanding shares (nearly 28% since 2009) is a positive factor as well. This share reduction benefits existing shareholders by increasing EPS (earnings per share).

Opinion

Valuation

Based on the analysis performed, CPRT’s price is Significantly Overvalued. As key metrics, we considered 10% Required Rate of Return and 20% Margin of Safety.

CPRT has a normal volatility of 3.12% according to its standard deviation of weekly returns over the past 3 years.

Now, in theory a company’s stock price should reflect its future cash flow generation potential, making free cash flow a significant factor that investors consider when valuing a stock. As a result, there’s a general tendency for stock prices to trend alongside a company’s free cash flow.

In CPRT’s case, the stock price is below the free cash flow line.

The company has received a range of ratings from buy to sell according to WSJ, Yahoo and MarketBeat. Specifically, there were 5 buy, 6 overweight, 17 hold, 0 underweight and 0 sell ratings. The consensus rating leans towards Hold.

Overview

Copart, a major player in the Diversified Support Services industry, presents an intriguing investment opportunity. Financially, they excel. Revenue has surged (90% increase since 2019), and they deliver impressive CAGRs for net income (21.33%) and free cash flow (17.45%) over the past decade. Their profitability is outstanding, with both gross margin (46.62%) and net margin (33.91%) significantly exceeding industry medians. Additionally, their exceptional financial strength, with a very good asset-to-liability ratio, outstanding current ratio, and negative net debt position, provides a significant financial cushion.

However, a major concern is valuation. Their stock appears significantly overvalued. The P/E ratio (38.15), EV/FCF (58.41), and EV/EBITDA (27.83) all considerably surpass industry medians (P/E ratio of 17.78, EV/FCF of 13.79, EV/EBITDA of 9.12). This suggests the market might be overly optimistic about their future growth prospects.

Overall, Copart receives a rank of 80%, a “Good” investment opportunity. Their exceptional financial performance and strong profitability are countered by a stretched valuation. If the valuation corrects or their future growth justifies the current premium, they could be a very attractive investment. The lack of a dividend might be a turnoff for income-seeking investors, but it allows them to reinvest heavily in growth.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.

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