Copart (CPRT)

Online vehicle auction company Copart (NASDAQ:CPRT) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 7.5% year on year to $1.21 billion. Its GAAP profit of $0.42 per share was in line with analysts’ consensus estimates.

Company Overview

Starting as a single salvage yard in California in 1982, Copart (NASDAQ:CPRT) operates an online auction platform that connects sellers of damaged and salvage vehicles with buyers ranging from dismantlers and rebuilders to used car dealers and exporters.

Like in other industries, the shift to online platforms can lower transaction costs and improve liquidity for sellers. Increasing digitization, AI-driven pricing analytics, and automation in logistics can enhance efficiency for operators who invest in technology and software. On the other hand, challenges include potential regulatory scrutiny on auction transparency, data privacy concerns with AI-driven valuation models, and shifting environmental policies that could impact the resale market for internal combustion vehicles. Additionally, supply chain volatility in new car production may create unpredictable swings in used vehicle supply, impacting auction volumes.

Copart's primary competitor is IAA, Inc. (NYSE:IAA), which also operates in the salvage vehicle auction market. Other competitors include KAR Auction Services (NYSE:KAR), which focuses more on whole car auctions, and regional or local salvage auction companies in various markets.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $4.59 billion in revenue over the past 12 months, Copart is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Copart’s sales grew at an incredible 15.6% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Copart’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Copart’s annualized revenue growth of 10.6% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

Copart also breaks out the revenue for its most important segment, Service. Over the last two years, Copart’s Service revenue (processing and selling cars) averaged 12.9% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, Copart’s revenue grew by 7.5% year on year to $1.21 billion, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 10.4% over the next 12 months, similar to its two-year rate. This projection is healthy and suggests the market is baking in success for its products and services.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Copart has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 38.5%.

Analyzing the trend in its profitability, Copart’s operating margin decreased by 6.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Copart generated an operating profit margin of 37.3%, down 1.5 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Copart’s astounding 16.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q1, Copart reported EPS at $0.42, up from $0.39 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Copart’s full-year EPS of $1.52 to grow 12.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Copart has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 23% over the last five years.

Taking a step back, we can see that Copart’s margin expanded by 3 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Copart’s free cash flow clocked in at $572.9 million in Q1, equivalent to a 47.3% margin. This result was good as its margin was 11 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Copart’s five-year average ROIC was 32.2%, placing it among the best business services companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Copart’s ROIC averaged 2.7 percentage point decreases over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Copart is a profitable, well-capitalized company with $4.38 billion of cash and $101.1 million of debt on its balance sheet. This $4.28 billion net cash position is 7.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results. Overall, this was a weaker quarter. The stock traded down 3.8% to $58.33 immediately after reporting.

Updated: June 14, 2025 at 10:24 PM EDT

Are you wondering whether to buy Copart or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There is a lot to like about Copart. For starters, its revenue growth was exceptional over the last five years. And while its declining adjusted operating margin shows the business has become less efficient, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. Additionally, Copart’s impressive operating margins show it has a highly efficient business model.

Copart’s P/E ratio based on the next 12 months is 28.3x. Scanning the business services landscape today, Copart’s fundamentals clearly illustrate that it’s an elite business, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $60.69 on the company (compared to the current share price of $49), implying they see 23.9% upside in buying Copart in the short term.