Copart (Nasdaq: CPRT) has barely felt the losses now running cyborg-like through auto stocks after the British exit vote.
But that will quickly change.
As soon as the Copart double-digit exposure to the United Kingdom market becomes evident, even the Terminator himself could be expected to turn tail and run from this stock.
Copart is in the online junk-car business. The Dallas-based company sells recycled scrap cars to the public, vehicle dismantlers, exporters, etc. in the United States and elsewhere, including Britain.
Britain voted Thursday to exit from the European Union. Stock losses are extending as global markets consider the potential economic turmoil and the uncertainties. Now Copart is vulnerable ...
Indeed, Brexit has conspired with other issues to prepare Copart for - not a rise of the machines - but a brutal fall.
Investors may find other viewpoints here. Meanwhile, consider the top five reasons TheStreetSweeper believes Copart investors might want to run for safety.
First, here are TheStreetSweeper's executive bullet points:
*About 18.7% of Copart revenue faces exposure to European concerns.
*Brexit is expected to exacerbate Europe's declining used car sales.
*Any economic squeeze can cut driving, accident claims and Copart's business.
*A sluggish economy also creates more uninsured drivers who typically just fix their cars, meaning fewer cars for Copart to salvage out.
*Since the Brexit vote, other auto stocks have suffered double-digit declines.
*Copart has ~$137m in cash … and a $96 million "demand for payment" of back taxes and penalties.
* Insiders are selling their stock.
*1. Brexit: Lower Demand, Customer Loans, Uncertainties
Copart faces extreme exposure to the United Kingdom. An estimated 18.7 % of the company's revenue is generated there.
In 2008, Copart took on expansion into Europe, a risky and costly proposition that may now contribute to the stock's decline. Entries into other markets have followed and managers are apparently still pulling out their hair over issues like integrating technology and people, plus enduring extra capital costs.
Now, Brexit has exacerbated the cooling auto market, trade experts believe:
Glasses' Guide director Rupert Pontin told MotorTrader the first week of June: "We have been tracking data for a while and it shows that demand for cars in this sector is falling and that they could be tricky to sell unless the colour and spec were right."
Glasses', a European car buying guide, initially blamed an oversupply of more expensive used cars. Mr. Pontin concluded that oversupply is just part of the problem. Potential car buyers also told dealers that looming Brexit had them worried about financial uncertainty. They wonder, would a bank give them a car loan?
Worries about lower European auto sales have alarmed investors and depressed stocks in the last few sessions.
When voters approved exiting the EU, stockholders initially hammered the Big Three automaker stocks then shifted to beating up other auto stocks. European-heavy standards like Penske and others are taking double-digit falls:
Shark Tank's Mark Cuban summed up Brexit's impact with characteristic bluntness.
"Absolutely uncertainty," said Mr. Cuban. "And that's what the market hates."
(Source: Bloomberg TV)
Before Brexit, car makers had the same safety and environmental standards that allowed them to sell everywhere in the European market.
But the EU exit complicates the auto business.
That's according to Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics.
"You would no longer be able to sell into other European markets," he said, "not because you face a small tariff but because you'd have to go through another set of safety certifications."
Altogether, Copart's European sales could dive substantially since nearly 19 percent of its revenue may be on the line. Out of its $347 million revenue last quarter, roughly $64.9 million in sales could be in jeopardy.
*2. Knock-Knock. Who's There? A $96 Million Demand For Payment
While company sales are bracing for a hit, the state of Georgia says Copart has failed to collect multi-millions in sales taxes over five years.
Now Georgia wants that money. The state last August hurled out a "demand for payment" for $96.1 million in back taxes, penalties and interest.
Unfortunately, $96 million may be a drop in the bucket. Defending this ugly problem involves outside lawyers and a cyborg army's worth of dollar bills:
"If the matter were to be resolved in a manner adverse to the Company," SEC filings state, "it could have a material adverse effect on the Company's consolidated results of operations and financial position."
Copart has been involved in numerous lawsuits, including a 2014 $1.2 million diversity-breach of contract suit. But the Georgia government proceeding gobbles up its share in time and management distraction. The timing is especially bad now that management is dealing with the risks in its European business.
And the whole mess is particularly bad because ...
Copart's cash is down...
*3. Declining: Cash
While revenue is up the cash and assets are falling. European sales shrinkage would pressure cash that much more. Right now Copart has just a little more cash on hand than it would take to pay the claimed back taxes and penalties.
(Source: Company SEC filing)
As our chart above shows, Copart's cash is down a stunning 79.7%.
*4. Bad: Customer Reviews
Consumer reviews have been somewhat mixed - some advise it is possible to get a reasonably price car if an abundance of caution and good sense are used - but the vast, vast majority recite bad experiences with Copart. The top story is "copart.com is not a good place to buy a car or anything."
"Johnny Boy" complained on June 19: "They have no honor or decency. It got to a point where I got them really good and I won't say where or how other than to say this time I made up for all the losses. End of story I stopped buying from them because I know that while you may get a good one here or there it's like a casino they always win. They will always get you! My advice: Do yourself a favor, stay awy from Copart."
"Larry" wrote on June 21: " Never buy anything from Copart without having it inspected..
"When I had that one inspected he said it was hit so hard in the rear that the front doors wouldn't open and the front fenders were buckled ,with his power pac on the car,nothing worked and the engine oil was burnt,yet both of these cars were listed as run and drive ...tread carefully."
"Goldhands136" kicked off the 450 comments with his lengthy story in 2010 of looking a gift horse in the mouth and finding, well, something besides what he had hoped. Excerpts include:
"Recently I bid on and won a car on copart.com and I got to see just how bad a company (they) really are.
"To make my story short-I traveled to another state to get the car and it was nothing like I expected. I arrived shortly after they opened the doors and my car would not start. I soon saw them bringing the car to the shop area with a forklift! I thought to myself "Good grief. What the Hell have I got myself into!"
"I ended up leaving the car at the Copart facility and returned home empty-handed. I made some videos and put them on Youtube and just a few hours later started receiving phone calls from Copart executives asking me to please tell them how they could make me happy and asking me to please remove the videos. Nothing came from the phone conversations and I still do not have the money I lost in the deal. My problem with Copart is still not resolved and my videos can be seen on Youtube, Metacafe and Dailymotion."
*5. Unloading Stock: Insiders
Investors always hate to see it but insiders are selling their company stock. Copart officers and directors have dumped over 180,000 shares just since May.
That kind of stock dumping by those who know the company best seems like a not-so-subtle sell signal.
The Terminator himself couldn't successfully leap the massive roadblocks in front of Copart.
The Brexit impact alone has already taken a double-barreled aim at other auto stocks. By all rights, Copart looks ready for its own double-digit scream back down to reality.
Add the insider selling, bad reviews, declining cash and assets, the $96 million payment demand, and other risks on top of the 18.7% UK exposure and you've got one ugly cyborg crash crouching just around the corner.
TheStreetSweeper believes Copart is at the brink of crumpling by about 30%, a far more reasonable valuation.
Disclosure: I am/we are short CPRT.