Copart's Dip: A Golden Buying Opportunity in a Long-Term Growth Story

The recent sell-off in Copart Inc. (CPRT) has created a rare opportunity to buy one of the most consistent growth stories in the market—provided investors look past the noise of short-term volatility. After a 11.5% decline in May 2025, driven by a modest earnings miss and macroeconomic jitters, the stock now trades at $53.67, down from its February high of $62.97. But beneath the headline numbers, Copart's long-term fundamentals remain intact, its structural tailwinds are accelerating, and its valuation—while elevated—now offers a clearer margin of safety. This is a buying opportunity for investors with a multi-year horizon.

The Sell-Off Explained: A Catalyst for Value

The immediate catalyst for the sell-off was Copart's Q3 2025 earnings report, which missed revenue expectations by $30 million. Service revenues of $1.03 billion fell short of estimates, while international vehicle sales slumped 25% due to weaker demand. Meanwhile, rising operational costs—up 12% year-over-year—compressed margins, sparking concerns about scalability.

However, this reaction overemphasizes near-term headwinds. The revenue miss was largely due to transitory factors: macroeconomic uncertainty, temporary dips in international sales, and rising repair costs (which paradoxically benefit Copart's long-term thesis by increasing total loss rates).

The Fundamentals Remain Unshaken: A 30-Year Growth Machine

Copart's core business—online auctions for salvage vehicles—has delivered 21% annualized returns since its 1994 IPO, turning investors into multi-baggers. Here's why its moat is intact:

1. Structural Tailwinds:
2. Rising Total Loss Rates: Vehicle complexity and repair costs are soaring, pushing insurers to declare more cars totaled. U.S. total loss rates hit 22.8% in 2024, up 100 basis points year-over-year. This trend is irreversible as cars become more expensive to repair.

3. Global Expansion: Copart operates in 11 countries, with international revenue growing 18% in Q3. Emerging markets like Mexico and China offer underpenetrated opportunities.

4. Technological Edge:

5. AI-driven innovations like Title Express (streamlining insurance claims) and image recognition tools are boosting auction efficiency. These initiatives reduce costs and deepen insurer partnerships.

6. Cash Flow Machine:

7. EBITDA is projected to hit $2.3 billion by 2026, up from $1.83 billion in 2023. With no dividend obligations, Copart reinvests aggressively in storage facilities and tech, ensuring long-term scalability.

Valuation: Overdue Correction or Overdue Caution?

At a P/E of 36x (down from 43x pre-earnings miss), Copart is no longer cheap. But its valuation is justified by its growth profile:

• Growth vs. Peers: Copart's 10-year EPS CAGR of 21% outpaces peers like AutoNation or CarMax. Its PEG ratio of 2.17 suggests investors are paying for growth, but this is still reasonable given its 14-15% forward EPS growth estimates.
• Historical Context: The current P/E is within Copart's historical range (15.75-44.64), and its 3-year average P/E of 33.66 offers a floor.

Critics argue the stock is overvalued, but this misses two key points:
1. Margin of Safety: The May dip reduced the P/E from its peak, lowering entry risks.
2. Low Debt, High Equity: With $6 billion in equity and a debt-to-equity ratio of 11%, Copart has the financial flexibility to weather short-term headwinds.

The Bottom Line: Buy the Dip, Play the Long Game

The recent sell-off has created an entry point for investors willing to look past quarterly noise. Copart's long-term drivers—rising total loss rates, global expansion, and tech-driven efficiency—are unshaken. While near-term risks like uninsured driver trends or trade tensions linger, they are temporary compared to the secular growth in its core market.

With a median price target of $66.73 and a consensus “Buy” rating from analysts, the upside potential outweighs the downside risks at current levels. For income-focused investors, the lack of dividends is a drawback, but the capital appreciation profile more than compensates.

Action to Take:
- Buy Now: Use the dip below $55 to accumulate shares.
- Set a Target: Aim for $60 in the short term, with a 12-18 month horizon of $70+.
- Stop-Loss: Protect gains below $50, which would signal a breakdown of support.

In a market starved for consistent growers, Copart's stumble is a gift. This isn't just a recovery trade—it's an opportunity to own a 21st-century monopoly at a 20th-century price. The sell-off? A gift wrapped in bad news.

Disclosure: This analysis is for informational purposes only. Consult your financial advisor before making investment decisions.