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Copart: Moat Built By Outstanding Management

Aug. 22, 2023 10:59 AM ETCopart, Inc. (CPRT)18 Comments
Tomas Riba profile picture
Tomas Riba
296 Followers

Summary

  • Copart is enjoying market tailwinds in a dominant position that grows as the company gets bigger.
  • Management has strong skin in the game, and it is still led by its founder. The CEO has been receiving all his compensation in stock options since 2009.
  • Copart's highly defensive business model in both inflationary and deflationary environments comes with a valuation premium.

Accidente de coche rojo sobre fondo blanco aislada

Vlad Kochelaevskiy/iStock via Getty Images

Investment thesis

Copart (NASDAQ:CPRT) is what I classify as an outstanding business. It operates in a niche market and enjoys a dominant position, which grows with the company's size. The company profits from both an inflationary environment, since

This article was written by

Tomas Riba profile picture
296 Followers
My passion for financial markets started at a young age and I have been investing since 2006.Later on, I studied Economics and started as a buy-side equity research analyst. After studying for a Masterā€™s Degree in Economic Analysis and working as an accountant, I assumed the position of CFO for a holding company that operates in pharma, medical devices, textiles, food industry, and real estate.My experience as CFO has helped me to understand the ins and outs of a company from the management perspective. Also learned some accounting tricks that are not taught at university, which now help me to dive deep into the accounting of the companies.My mission is to identify the best quality companies with competitive advantages able to compound their cash flow exponentially and are trading at a fair price. I look for profitable businesses, operating in a growing sector, with high returns on capital, expanding margins, low debt, and management with skin in the game. I wish to provide my readers with a deep analysis where I explain the company's business model, the dynamics of the market, competition, financials, and management. Furthermore, I apply valuation measures (multiples and DCF) and qualitative analysis to determine expected growth and give readers a competitive advantage. Even if I look for the most recent developments, my investing approach is focused on the long-term in companies that can deploy capital at high ROIC for some years ahead.

Analystā€™s Disclosure: I/we have a beneficial long position in the shares of CPRT either through stock ownership, options, or other derivatives. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

teemacsj profile picture
Outstanding write up on a hidden gem. Thank you
Tomas Riba profile picture
Thank you @teemacsj, I'm glad you liked it!
Windermer profile picture
Top article
Tomas Riba profile picture
Thank you @Windermer, happy you liked it!
d
Nice work. My favorite investment.
Tomas Riba profile picture
@dstb Thank you a lot. One of my favourites too.
K
Some ppl think Carvana could eventually move into this space and compete. Any thoughts?
d
@KevinFB
Good luck to them. Copart is a well oiled machine with a large moat.
Tomas Riba profile picture
@KevinFB It doesn't worry me at all. They don't have the money to do so, and the 0% interest rates that kept them alive are over.

First, I believe they have enough with their business which they didn't figure out yet how to make it profitable. I was reading its 2022 annual report and I felt like management was trying to sell me something, which I don't like. They are diluting shares and the amount of debt they have is huge compared with sales (since I can't compare it to profits).

Secondly, they would have a hard time, they have to buy the yards, and there are not many out there that Copart doesn't have. Some of the yards they own took many years for Copart to acquire.

Plus Carvana doesn't have the technology to compete with Copart, they could build it, but Copart has been improving it for two decades, so it's not gonna be easy for Carvana.

Finally, this is a business with huge network effects, the insurance company is not going to partner with you if you just have one yard. They need Copart because they have yards in many places since you don't know where your customer's car is going to crash.
K
@Tomas Riba Well enumerated response. Thank you for this. I too am skeptical of CARVANA. And yet some deep value investors are sold on it. Since I follow the auto industry, I try to figure out what such investors see in CARVANA. They seem bent on "disruptive innovation" and outsized growth potential. Nonetheless I remain wary.
O
glad to see you mentioned "skin in the game". i bought some shares back in '09
when both ceo and pres. elected to receive stock options in lieu of cash compensation( ex. the $1.00 per year). easy to buy when they have so much
confidence.
Tomas Riba profile picture
@1OLDtimer Nice that you found it back then. Looks like it was a wise decision for them to receive the compensation in stock options. Absolutely agree, it is easy to buy when you see management so aligned with shareholders.
Mick Research profile picture
Nice article.
Tomas Riba profile picture
Thank you @Mick Research, glad you liked it.
a
Great articlešŸ‘thank you and good luck for next one. Very detailed and crisp
Tomas Riba profile picture
Thank you @animeshkol! I'm glad you like this format and hope it is useful.
m
Great article about a great investment.
Tomas Riba profile picture
@maphead Thank you! It is a great investment.
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