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Copart: Neutral As Profit Margin Expected To Be Flat

Jul. 24, 2023 11:07 AM ETCopart, Inc. (CPRT)3 Comments
Normad Capital profile picture
Normad Capital


  • Copart's 3Q23 sales grew by 8.7% to $1.02 billion, with the company's adjusted EPS increasing 22.4% year over year to $0.72.
  • CPRT should continue growing the revenue line in the hsd to the 10% range. However, net margin is expected to remain flat at 31%.
  • Based on my model, at 33x NTM PE, CPRT seems to be fairly valued. Hence, I recommend a hold rating.

Car auction Sold out concept. Vehicle security key with tag on the wooden background



I am recommending a hold rating for Copart (NASDAQ:CPRT) as the valuation is not attractive at this level. While positive growth indicators and continued revenue growth support the company's prospects, I have concerns regarding the margin trajectory. I would, however, turn more positive

This article was written by

Normad Capital profile picture
Both a full-time investor and a full-time operations manager. I've learned about investing over the years by reading and researching businesses that, in my opinion, have a significant competitive advantage that can sustainably produce returns above its cost of capital.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (3)

gritty profile picture
Any thoughts on the rba purchase of iaa and change in competitive landscape? I understand, IAA uses more debt and leases most of its yards and has poorly margins and lost the geico account to cprt...but what are your thoughts on the combined business of rba & iaa into one? Any synergistic factors when they are in 1 business that you think will make them more competitive against cprt?
"With historically strong pricing, CPRT performance has been marked by margins above and beyond what was expected. On the other hand, the volume of damaged vehicles being repaired rather than salvaged has led to higher performance levels than would have been expected in the absence of the COVID-19." Boy, this is unclear writing -- can the author explain in plain English what he is saying? I guess I'm pretty dumb, can't make head nor tails. The rest of that paragraph is equally convoluted.

What does TLR mean? Never defined.

I'm under the impression that CPRT managment doesn't have an opinion if high-volume/low price (pre COVID) or low-volume/high price (post COVID) is better for margin -- here is a quote from the Nov '22 call:
"So, as used vehicle prices soften, we will see ... a softening in the selling prices of our cars, which is a self margin dilutive. We will, at the same time, see an increase in volume because a big part of the suppression of total loss volume today is ... high used vehicle prices. So, when we see that additional volume flow through the system, that is margin accretive."
So, one helps and the other hurts.
( seekingalpha.com/... )
So I think this does not comport with your statement: " I think CPRT's growth can only be explained by the positive effects of a drastic change in the company's revenue mix, away from low-margin high-volume contributions and into higher-margin high-priced ones. The issue is that CPRT will suffer margin contraction when the opposite occurs (higher volume at lower prices)."
I remember the CEO out and out saying that he didn't really know which scenario was better, but I couldn't locate that statement.

CPRT does not operate "worldwide" -- they operate in a few countries like Spain, Germany, Finland and UK. It is not trivial to expand into each new country as their insurance loss procedure models are not the same as the US.

KAR is not bad because of debt, (you don't pay cash for a house, do you?) but they don't have the stellar management that CPRT does. Long CPRT always.
What does TLR stand for?
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