Copart Will Likely Benefit From Tariffs, But Stock Is Not Cheap
29min read The automotive salvage auction giant Copart (NASDAQ: CPRT) is positioned to ride a wave of macroeconomic tailwinds in 2025, as tariffs on imported vehicles and parts reshape the insurance industry and consumer behavior. Yet investors must weigh these advantages against the stock’s elevated valuation, which already prices in years of steady growth. Let’s dissect whether Copart’s recent performance—and its tariff-driven narrative—justifies its current price or if it’s time to tread carefully.
Ask Aime: Is Copart's stock overvalued in 2025?
Why Tariffs Are a Tailwind for Copart
The U.S. government’s 25% tariffs on automotive imports, coupled with retaliatory measures by some trading partners, have created a perfect storm for Copart. Here’s how:
Ask Aime: "Could Copart's tariff benefits turn its stock into a roadkill?"
Higher Total Loss Ratios: Insurers are declaring more vehicles “totaled” because repair costs—already inflated by rising part prices—now exceed the value of the car itself. Copart’s Q2 2025 total loss ratio hit 23.8%, a record high, as insurers opt to sell salvage vehicles to Copart’s auctions rather than repair them.
Rising Pre-Accident Values (PAVs): Tariffs are pushing up the cost of new vehicles, which directly inflates the PAVs used to calculate insurance payouts. While this could reduce total loss ratios by making repairs cheaper relative to a car’s value, the opposite is happening: consumers are avoiding new cars altogether.
Consumer Shift to Used Cars: New vehicle prices have surged—Toyota models are up $6,000–$10,000 due to tariffs—driving buyers to used vehicles. Copart’s inventory of high-quality salvage and rental cars meets this demand, with buyers in Eastern Europe, the Middle East, and Africa snapping up repairable vehicles for pennies on the dollar.
Financial Fortitude and Margins Under Pressure
Copart’s financials paint a picture of resilience, even as margins face headwinds:
- Revenue Growth: The company reported a 14% year-over-year revenue jump in Q2 2025, fueled by higher auction volumes and fees. Total revenue for fiscal 2024 hit $4.2 billion, up 9.5% from 2023.
- Cash Machine: Copart ended Q2 with $3.8 billion in cash and no debt, thanks to $660 million in operating cash flow year-to-date. This liquidity fuels tech investments (like its AI-driven “Title Express” tool) and international expansion.
- Margin Trade-Offs: Gross margins dipped temporarily due to reinvestment in technology and real estate, but international operations are closing the gap with U.S. margins (50% vs. 40% in 2020).
Valuation: Priced for Perfection?
Copart’s stock trades near $60, up 61% from its 2023 lows, but valuation metrics raise eyebrows:
- DCF Analysis: A 10-year inverse DCF suggests the stock’s current price already reflects modest long-term growth. To justify further gains, Copart must sustain its record TLR and expand margins in international markets.
- Analyst Sentiment: Most analysts remain on the sidelines with “hold” ratings, though a strong Q2 earnings report (up 18% in net income) could push upgrades.
- Technicals: The stock’s breakout above its $60 resistance level and a bullish 50-day moving average point to a $70 price target—a 17% upside—by mid-2025.
Risks to Consider
- Auto Industry Volatility: A sudden drop in total loss ratios—due to cheaper repair costs or insurer policy shifts—could shrink Copart’s auction volumes.
- Interest Rate Sensitivity: With no dividend and a focus on reinvestment, Copart’s stock offers little defensive appeal in a rising rate environment.
- Retaliatory Tariffs: While Copart’s international buyers avoid trade-war fallout, a broad escalation could disrupt global vehicle flows.
Conclusion: A Compelling Story, But Proceed with Caution
Copart’s dominance in salvage auctions, paired with tariffs boosting total loss ratios and redirecting consumer demand, positions it to thrive in 2025. Its $3.8 billion cash pile and margin improvements in international markets add further confidence. However, the stock’s current valuation demands flawless execution: investors are already paying for a $70 price target, which hinges on sustaining record TLRs and margin expansion.
For long-term investors, Copart remains a durable play on its structural advantages—network effects, insurer partnerships, and sticky demand for salvage vehicles. But traders chasing the tariff tailwind should remember: Copart’s stock is no longer a bargain. The upside exists, but so does the risk of overpaying for a story that’s already been told.
As Copart’s CEO noted in Q2 earnings: “Tariffs are neutral to positive”—but so is the stock’s valuation. Proceed with a clear eye on both the upside and the risks.
