Subject: Copart Thesis
Business
Copart (ticker CPRT), headquartered in Dallas, Texas, and trading on the Nasdaq, is the leading global marketplace for damaged or end-of-life (totaled or old) vehicles. It sits primarily between auto insurance companies that need to dispose of total-loss cars and a fragmented, worldwide base of car buyers. Copart typically sells salvage vehicles on consignment rather than owning the vehicle inventory, so has little credit risk. It generates most of its revenues from auction fees and from service fees such as for towing, storage, title processing, and salvage value estimation. Copart has a growing global operation, with 16% of revenues and 12% of operating income coming from outside the United States in the first two quarters of the current fiscal year (fiscal year ends July 31).

Industry Structure
Copart is one member of a duopoly in U.S. online auctions in the salvage vehicle market, along with IAA (formerly Insurance Auto Auctions, bought in March 2023 by RB Global, formerly Ritchie Bros. Auctioneers). Copart is the larger and better-managed of the two competitors, although since IAA’s purchase by RB Global, IAA has been making some headway in narrowing its market share and operational gaps.

Moat
Copart benefits from its two-sided network, which helps it maintain high margins (5-year average gross margin 47%, EBIT margin 39%, net margin 32%) and return on capital (5-year average 24%). Similar to Amazon Marketplace, eBay, and Airbnb, more buyers attract more sellers and vice versa, as each new participant increases the value of the network and transaction volume. With each additional vehicle it sells, Copart increases the attractiveness of its auction platform to the world’s automotive buyers, drawing still more buyers and in turn drawing more sellers.

The seller side of the network consists of the largest North American property and casualty insurance carriers and automobile dealerships, plus banks and finance firms, fleet and rental operators, and charities. The buyer side comprises dismantlers and recyclers, rebuilders, used car dealers, and exporters that are getting increasing access to foreign salvage buyers. Granted, IAA also has a two-sided network, but the two main points are that Copart’s network is larger and therefore more valuable; and Copart’s network acts as a strong barrier against smaller competitors and any potential new competitors.

Tailwinds Supporting Growth
Varying degrees of growth in population, vehicle miles driven, average vehicle age, and repair costs provide tailwinds to growth. For example, the more it costs to repair a vehicle (compared to the vehicle’s pre-accident value) due to higher labor costs and more complex materials and expensive equipment (composite materials; technology such as sensors, cameras, computer chips, etc.), the more likely the vehicle will be totaled and auctioned rather than repaired after an accident.

Financial Strength
Copart boasts a fortress balance sheet ($5.0 billion net cash on a $36.9 billion market cap as of February 27, 2026) and consistent free cash flow generation. This shows clients that Copart has the wherewithal to withstand troubling times versus IAA under RB Global ($3.9 billion net debt on an $18.8 billion market cap).

Stability
Copart has limited exposure to economic cycles, for those who appreciate that characteristic. When used car prices are high, more damaged cars are repaired by insurance companies rather than salvaged, leading to lower auction volumes but offset by higher average vehicle selling prices received at auction and thus higher selling commissions per vehicle for Copart. By contrast, when used car prices are low, more damaged cars are salvaged rather than repaired, leading to higher auction volumes but offset by lower average vehicle selling prices received at auction and thus lower selling commissions per vehicle for Copart. During the Global Financial Crisis, Copart revenues during FY08 (ending July 31, 2008) were up 40% and in FY09 were down a mere 5%; and its revenues did not fall on a year-over-fiscal-year basis during the Covid pandemic. Overall, business keeps rolling along fairly smoothly in most economic scenarios. Additionally, most weather-related catastrophes and some man-made catastrophes, such as wildfires, tend to increase vehicle damage and auction volumes.

Capital Allocation Positives
Real Estate Strategy: Copart buys and owns a large majority of its land rather than leasing, investing for the long term in salvage yards and car parks, providing a strong competitive barrier to entry. Land ownership in close proximity to major population centers where most accidents occur reduces vehicle towing costs. Also, owning the land eliminates the landlord’s ability to raise Copart’s rent or terminate its lease. Zoning and permitting restrictions, urban sprawl, and NIMBYism (Not in My Backyard, the milder version of BANANA—Build Absolutely Nothing Anywhere Near Anything) make it extremely difficult if not impossible for competitors to match Copart’s land advantage.

Reinvestment Opportunities: Copart continually reinvests in its business, especially to purchase new land and expand existing locations. This includes investing in overflow capacity to service large catastrophe events, during and after which unusually high vehicle volumes must be quickly stored and processed. These long-term investments help retain clients and gain market share.

Repurchases: Copart repurchases large chunks of its common stock when undervalued. Its solid balance sheet is now becoming that much more valuable, as the stock price has dropped 40% since its peak in May 2025. Copart repurchased $218 million of shares in the quarter ended January 31, 2026, after not having repurchased much since a sizable stock downdraft in 2018-2019.

Insider Ownership
Copart’s executive officers and directors, which include its two cofounders, collectively own 9.6% of Copart’s common stock. Unfortunately, there has been no market-price insider buying lately to complement Copart’s own recent share buybacks.

Valuation
Net of the roughly $5 in net cash on the balance sheet, Copart’s trailing-12-month P/E ratio is about 21 on a fully diluted basis; and except for the March-April 2020 Covid lows, this P/E sits at around its 8-year low. That’s a reasonable price to pay for a high-quality duopoly business with a moat, barriers to entry, industry tailwinds, high return on capital, balance sheet strength, economic stability, and good capital allocation. And both its enterprise-value-to-EBIT and price-to-sales ratios are nearly as low as they’ve been in the last 7 years.

Risks to Keep an Eye On
Irrational Competition: IAA (or Copart) may act irrationally to gain market share (e.g., pricing below marginal cost or initiating a price war, etc.)

Autonomous Vehicles: AVs may sharply reduce accidents and thus vehicle salvage volumes. This risk is a multi-decade risk due to the slow changeover in the car parc (industry term for all vehicles on the road), and Copart is diversifying its revenue streams through non-insurance volumes (e.g., bank, rental, and fleet clients) and specialty equipment. And while accident-avoidance technology can reduce accident frequency, it also increases severity due to higher repair costs, which could somewhat dampen the negative business results.

Uninsured: A rise in auto insurance premiums may result in a modest rise in the uninsured population due to insurance unaffordability, creating a minor offset to the growth in Copart’s insurance-related business.

Execution: Copart’s execution may falter in international expansion.

Additional Things to Watch for: A sustained decline in Copart’s unit economics, signs that its advantages versus IAA are eroding, irrational capital allocation.