Summary: ON SALE
Share Price: $144
Sticker Price: $588
Is Copart stock a good buy?
Copart, Inc. is an online auction of used vehicles that was founded in 1982 and headquartered in Dallas, TX. The company services the following countries including the United States, Canada, the United Kingdom, Brazil, the Republic of Ireland, Germany, Finland, the United Arab Emirates, Oman, Bahrain, and Spain.
Copart offers a range of services for processing and selling used vehicles over the internet through its virtual bidding third generation internet auction-style sales technology to vehicle sellers, insurance companies, banks and finance companies, charities, and fleet operators and dealers, as well as individuals.
Copart’s buyers are primarily used vehicle dealers, dismantlers, rebuilders, exporters and consumers.
Vehicle sellers include insurance companies, banks and financial institutions, charities, vehicle dealers, fleet operators, government agencies and rental car companies.
The company is essentially a service provider to auto insurers. When an insurer decides to pay off a customer whose car was damaged in an accident, rather than repair it, the insurer takes ownership of the vehicle, which it then wants to monetize. That’s where Copart comes in: it takes possession (but usually not ownership) of the car, markets it and makes it available in online auctions.
Due to Covid-19, new vehicle production has slowed which means new vehicle inventory has declined. Although the new vehicle inventory has declined, the consumer demand hasn’t changed which means the used vehicles have become a hot market.
This article from marketplace.org includes an interview from a third generation car dealership owner who says he’s having to go out of his comfort zone and buy used vehicles from online auctions, without looking at the vehicles in person. It’s a risk to buy vehicles without an in person assessment and test drive but they need the inventory to meet consumer demands.
This article from cfo.com states that according to a Deloitte analysis, Copart is the most financially exceptional public company in the United States. The company is extremely mindful around capital allocation. They try to make sure every dollar spent generates a higher return. They also do their best to leverage natural hedges in the industry. For example, as more smart cars and accident prevention technology increase, most competitors will expect a lower volume of cars but that isn’t true. Due to the complexity of new technology, these types of cars will be more difficult to repair which means companies like Copart will continue to see more inventory. There is also a similar hedge with respect to used-car pricing. If pricing goes down, a car is worth less, and an insurer is unlikely to pay for repairs that approach or exceed its value. Copart generates less revenue per car, but it receives more cars and they have the infrastructure to take in more inventory.
This article from caranddriver.com states the average price of a used car is up 30% from where it was last year. This same article lists 10 brands that have seen prices increase higher than 30% including…
Aston Martin – 38%
Ford – 38%
GMC – 37%
Chevy – 37%
Dodge – 36%
VW – 35%
Lincoln – 32%
Toyota – 30%
Hyundai – 30%
Kia – 30%
This article from businessinsider.com states that due to global microchip shortages, new vehicle production volumes for all manufacturers are still down which means the used vehicle market will remain in high demand.
This article from techmonitor.ai states that chip shortages could remain through 2023. This means new vehicle production may remain low which means used vehicle demand remains high.
Let’s see how Copart stacks up against the competition.
Share Price: $144
Sticker Price: $588
KAR Auction Services (KAR)
Share Price: $16
Sticker Price: $16
Share Price: $135
Sticker Price: $136
Share Price: $106
Sticker Price: $535
Now let’s take a look at the 4 M’s.
MOS: The financials are very strong. The score is 20/20 which means all important metrics such as Revenue, Net Income, EPS, Free Cash Flow, Assets, and Equity are increasing consistently, year over year. As for the MOS of 75%, this shows the stock has a lot of upside potential.
Meaning: New car inventory is low which means used car demand is high. Copart is well positioned to thrive in this market and prepared to grow when new car inventory increases again. And knowing that the electric vehicle industry is growing makes no impact on Copart. Regardless if a vehicle runs on gas or electricity, Copoart can move the inventory.
Moat: It’s important to note that CarMax and AutoNation are similar businesses in that they sell used vehicles but the Copart model is slightly different. Copart’s buyers are primarily dealers, dismantlers, rebuilders, and exporters whereas CarMax and AutoNation buyers are primarily consumers. This means Corpart is moving more inventory per transaction. In other words, a consumer will typically buy one vehicle at a time from CarMax or AutoNation whereas a dealership may purchase 5, 10, 20 or more vehicles at once. As long as Copart maintains great relationships with their business buyers, they will continue to thrive. The only real competitor is KAR Auction Services which services the United States, Europe, Canada, Mexico, and the United Kingdom. Knowing that KAR has a score of 7/20 and a MOS of 1% in a thriving used card market shows they are not running this company as well as they should. In this case, Copart stands well above the competition.
Management: CEO Jay Adair has been working at Copart since the age of 19. He pioneered the move into online auctions and by 2003, their auctions were 100% online. He was appointed the role of CEO in 2010 and the share price has seen consistent growth since.
Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.
Revenue (Found on the Income Statement)
Revenue is increasing consistently which is a great sign.
Net Income (Found on the Income Statement)
Net Income is increasing consistently which is a great sign.
EPS (Found on the Income Statement)
EPS increased consistently which is a great sign.
Free Cash Flow (Found on the Cash Flow Statement)
Free Cash Flow has increased consistently which is a great sign.
Total Assets (Found on the Balance Sheet)
Total Assets have increased consistently which is a great sign.
Total Liabilities (Found on the Balance Sheet)
Total Liabilities have increased which is okay.
Total Debt (Found on the Balance Sheet)
Total Debt has increased. This is okay as well.
Total Equity (Found on the Balance Sheet)
Total Equity has increased consistently. This is a good sign.
Copart is an overall well run company. Their financials are nearly as good as they can get with a score of 20/20 and MOS of 75%. This shows this stock has some upside potential. When you look at the Meaning, we know the used car industry will be around in the next 10 years. No matter if gas or electric vehicles are on the road, Copart will thrive. When you look at the Moat, they do stand above the competition. CarMax and AutoNation may generate more revenue but they are more B2C whereas Copart is more B2B. When you look at the Management, CEO Jay Adair has a strong record of leading this business. If you’re looking for a unique stock to diversify your portfolio, this stock may be worth a look.
The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.