We came across a bullish thesis on Copart, Inc. (CPRT) on Durable Value Creators’ Substack by Durable Value Creators. In this article, we will summarize the bulls’ thesis on CPRT. CPRT Technologies, Inc. share was trading at $52.90 as of Oct 4th. CPRT’s trailing and forward P/E were 37.79 and 31.85 respectively according to Yahoo Finance.
A busy car auction being held at a leading car dealership, buyers and sellers engaging in active bidding.
Copart mainly works with insurance companies, which make up about 80% of their salvage volume and a third of their revenue. Because a few big insurance companies are their main customers, Copart keeps prices steady to maintain good long-term relationships. On the other hand, they have significant pricing power over its buyers who are dismantlers, rebuilders, and dealers because they are fragmented in nature. As a middleman, Copartmainly works with insurance companies, which make up about 80% of their salvage volume and a third of their revenue. Because a few big insurance companies are their main customers, Copart keeps prices steady to maintain good long-term relationships. On the other hand, they have more control over prices with buyers like dismantlers, rebuilders, and dealers because there are many of them. As a middleman, Copart helps insurance companies by letting them focus on claims processing by handling vehicle storage. Buyers benefit from Copart’s large online platform, which offers a wide variety of vehicles.
Copart’s strategic advantage lies in its vast network of owned salvage yards of about 19,000 acres out of which 90% are owned and 10% are leased. This contrasts with competitor IAA who leases most of it. This choice offers more stability to the company as compared to renegotiating leases and Copart has doubled its acreage since 2015, focusing on high-risk areas. Despite incurring losses during disasters due to high labor and sub-haul costs the company continues to serve these events as maintaining strong relationships with insurance companies is key to its business. In order to handle the rise in vehicle volume due to natural disasters the company keeps about 30% of its land idle allowing for operational flexibility. This strategy poses a barrier for new competitors, who may struggle to afford such idle land, making it difficult for them to compete, especially during catastrophic events.
Several growth drivers make Copart an interesting pick due to the company’s ownership of salvage yards and its online auction platform creating significant barriers to entry for competitors. Additionally, rising repair costs for newer vehicles are pushing insurers to write off cars more frequently, which benefits Copart’s fee-based revenue model. Management’s focus on technology, including its auction platform VB3, and a long-term strategy of signing agreements with insurers and banks, supports further growth.
Risks include the long-term threat of self-driving cars reducing accident rates and thus salvage volume, though this remains a distant concern. Economic downturns could also affect vehicle prices and loss rates, slowing the company’s growth. Despite these risks, Copart’s strong competitive position, expanding international presence, and well-executed business model make it a compelling long-term opportunity. While the stock is considered expensive, its robust growth prospects justify its current valuation, with a more attractive entry point around its historical P/E range.
Copart, Inc.is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 50 hedge fund portfolios held CPRT at the end of the second quarter which was 41 in the previous quarter. While we acknowledge the risk and potential of CPRT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CPRT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.