Copart: Cheap After a Steep Reset, but the Cost Squeeze Isn't Proven

Copart, the salvage-car auction operator long prized for two decades of compounding, is now a fallen stock: shares near $31 are down about 37% over the past year and roughly 21% in 2026, leaving the company trading at about 18 times trailing earnings. On the same September day it reported a quarter that laid bare why the stock fell, it announced a $1.9 billion all-cash takeover of ACV Auctions, a digital wholesale marketplace for dealer-to-dealer car sales. The two events answer different questions, and the gap between them is where the investment case lives.

The profit squeeze behind the slide

Copart's old story was operating leverage. It grew insurance-driven salvage volumes, pushed more cars through the same yards, and converted each increment of scale into fatter margins. The fourth quarter broke that pattern. For the three months ended July 31, revenue rose a modest 2.4% to $1.15 billion, while net income attributable to Copart fell 17.4% to $327 million and diluted earnings came in at $0.35, below the roughly $0.38 analysts expected. Gross profit fell 5.5% even as sales grew. For the full fiscal year, revenue was $4.67 billion, up just 0.4%, with net income of $1.48 billion.

The single metric that captures the problem is what management itself flagged: operating expense per car rose 12.7% in the fourth quarter compared with a year earlier. That is the opposite of leverage. Revenue per car is roughly flat while the cost to process each car is climbing double digits, so margin compresses mechanically. Buybacks can partially offset the EPS damage — Copart repurchased $1.6 billion of stock during the fiscal year — but a buyback shrinks the share count rather than repairing the underlying margin.

A cash deal that helps later, not now

ACV is Copart's answer to the growth question. ACV runs a technology-enabled marketplace connecting dealers and commercial sellers, with more than $10 billion in annual gross merchandise value, complementary to Copart's salvage and whole-car auctions. Copart is paying $10.50 a share in cash for all outstanding ACV shares, an implied equity value of about $1.9 billion, via a cash tender offer that it expects to complete around the end of 2026, funded entirely from its existing balance sheet. ACV will keep its leadership and operate as an independent subsidiary.

Two things about the deal matter more than the headline price. First, its scale is modest relative to Copart: $1.9 billion is roughly 7% of the current market value, a tuck-in rather than a transformation. Second, and more telling, Copart itself says the acquisition will be neutral to earnings per share in its first full year of ownership and only becomes accretive in fiscal 2028, with the payoff built on targeted cost reductions. The balance sheet can easily fund it — Copart carries net cash and converts around 29% of revenue into free cash flow — so the deal is not a solvency test. It is a statement that management expects to find growth on the digital side, and it does nothing to arrest the immediate cost creep.

The cheapness is real, and so is the unresolved risk

Strip the deal away and the core question is whether 18 times earnings for a business still earning $1.48 billion in annual net income is the buy-the-dip reset or a fair price for a slower, higher-cost Copart. The valuation has clearly reset faster than the business has deteriorated — revenue is flat, not collapsing, and profit margins, while compressed to the mid-30s on EBITDA, remain among the strongest in industrial services. By history, this multiple is a deep discount to where the shares spent most of the last decade, and the selloff has absorbed a genuine amount of bad news.

But the near-term evidence does not yet confirm the turn. Cost per car is still climbing at double-digit rates with no revenue-per-car offset, and the acquisition that is supposed to restart growth is EPS-neutral for more than a year. That is the definition of a thesis that needs proof before it can be rated a buy. The honest view is that this is too early: the stock is legitimately cheaper than it has been, but whether that cheapness is buying an overdone selloff or a permanently lower-margin Copart will be answered by the operating report, not the deal announcement. Copart is a name to own on a watch list until the numbers show cost per car flattening and gross margin stabilizing; in the meantime the falling multiple is compensation for a margin story that has not yet bottomed rather than a confirmed bargain.