Is Copart's Recent Price Drop a Strategic Entry Point for Value Investors?

The stock market's penchant for overreaction often creates opportunities for value investors. Copart (CPRT), a leader in the used vehicle auction industry, has experienced a 31% decline in 2025 amid macroeconomic headwinds and sector-specific challenges. However, a closer examination of its valuation metrics, earnings resilience, and strategic initiatives suggests this drop may represent a compelling long-term opportunity.

Undervaluation Metrics: A Discount to Historical and Industry Benchmarks

Copart's forward Price-to-Earnings (P/E) ratio of 23.18 as of December 2025 is significantly below its five-year average of 31.09 according to analysis. This discount is even more pronounced when compared to its industry peers, whose average P/E stands at 36x according to data. The company's Price-to-Book (P/B) ratio of 3.89 further underscores its undervaluation, falling well below its three-year average of 6.62 and five-year average of 7.22 as reported. Analysts estimate Copart's intrinsic value at $42.52–$53.97 per share, implying a 9.05% undervaluation relative to its current price of $38.67 based on calculations. Meanwhile, its Enterprise Value to EBITDA (EV/EBITDA) ratio of 15.86 is 25% below its five-year average of 21.22 according to analysis, reinforcing the case for a valuation gap.

Earnings Resilience and Analyst Optimism

Despite the 31% price drop, Copart's fundamentals remain robust. In 2025, the company reported a 9.68% year-over-year revenue increase and a 13.90% rise in earnings. Analysts project a 12-month price target of $47.60, representing a 23.09% upside from current levels according to forecasts. A Discounted Cash Flow (DCF) analysis further supports this, estimating an intrinsic value of $49.05 per share. These figures suggest the market may be underestimating Copart's long-term earnings potential.

Strategic Expansion and Competitive Advantages

Copart's international expansion is a critical growth driver. Auction units purchased by international buyers rose to 38% in 2025, up from 22.7% in 2010. The company has also opened new facilities in the U.S., U.K., and Spain, signaling its commitment to global diversification as detailed in SEC filings. Domestically, Copart's Title Express initiative has reduced in-yard times and inventory levels, boosting gross margins by 280 basis points year-over-year to 45.2% in Q4 2025. This operational efficiency, driven by AI and automation, enhances profitability and returns on capital.

Equally significant is Purple Wave, a platform acquired in 2023 to diversify revenue beyond insurance partnerships. While specific 2025 revenue contributions are not disclosed, management emphasizes its role in expanding non-insurance channels, such as commercial and dealer consignment. These efforts mitigate reliance on volatile insurance volumes and position Copart to capitalize on rising non-insurance demand.

Addressing Short-Term Challenges

Critics point to weak used car demand and insurance industry headwinds as risks. However, Copart's strategic pivot to non-insurance growth-evidenced by a 5.3% year-over-year increase in dealer unit sales-demonstrates its ability to adapt. Additionally, cost discipline has been a hallmark of its 2025 performance. Operating expenses rose just 0.4% despite a 5% revenue increase, reflecting streamlined yard operations and AI-driven decision-making.

Conclusion: A Case for Value Investors

The 31% decline in Copart's stock price appears to be a market overreaction to near-term uncertainties rather than a reflection of its underlying strength. With valuation metrics at multi-year lows, earnings growth outpacing the sector, and a strategic focus on international expansion and operational efficiency, Copart presents a compelling case for value investors. While risks such as insurance volume fluctuations persist, the company's competitive advantages-Title Express, Purple Wave, and a resilient business model-position it to deliver long-term value. For those willing to look beyond short-term volatility, Copart's current discount may prove to be a strategic entry point.