Copart (CPRT): A Tale of Valuation Dislocation and Operational Resilience Amid Market Volatility

The stock market has been a rollercoaster in 2025, with the S&P 500 surging 19.44% over the past 12 months and 13.67% year-to-date (per CPRT financial ratios). Yet, Copart (CPRT), the auto auction giant, has lagged badly, delivering a -11.49% total return in the last year and a -20.11% YTD drop. This underperformance is puzzling given CPRT's long-term growth trajectory-60.95% in 2023 and 17.12% in 2024, according to the same financial ratios. What's going on here? Let's dissect the valuation dislocation and operational momentum to determine whether this is a buying opportunity or a warning sign.

Valuation Dislocation: Is CPRT Undervalued?

Copart's current valuation metrics scream "discount," yet the market seems to be pricing in slower growth. Its forward P/E ratio of 26.01 is below both the peer average of 39x and the fair value P/E of 30.9x (per the CPRT financial ratios). Similarly, its P/S ratio of 9.26 and EV/EBITDA of 19.65 trail industry benchmarks, as shown in the revenue breakdown. Analysts at Simply Wall St argue the stock is undervalued by 27.7%, with a fair value target of $62.50 (see the Simply Wall St valuation).

However, the PEG ratio-a critical metric for growth stocks-tells a different story. CPRT's PEG of 2.00 exceeds the fair PEG, suggesting the market expects earnings growth to decelerate (per the CPRT financial ratios). This disconnect between valuation and growth expectations is the crux of the dislocation. While CPRT's fundamentals (strong liquidity, robust ROIC of 12.91%, and a 13.1% projected annual revenue growth to $6.6 billion by 2028, per a Simply Wall St analysis) justify optimism, the market is clearly skeptical about near-term execution.

Operational Momentum: A Mixed Bag

On the operational front, Copart has delivered consistent revenue growth, with 2025 revenue hitting $4.65 billion-a 9.68% increase from 2024 (see the revenue breakdown). The company's service segment (85.4% of revenue) remains its engine, while the Blue Car program and Purple Wave auctions are driving non-insurance growth, according to an Autobody News report.

Yet, there are cracks. Q2 2025 saw a 5.17% sequential decline in revenue to $1.13 billion, attributed to a strategic shift in processing low-value vehicles through its direct buy channel (per the CPRT financial ratios). While this move improves efficiency, it temporarily skews unit sales numbers. Additionally, ROE and ROA have dipped slightly to 18.48% and 11.84%, respectively (per the CPRT financial ratios), raising questions about margin sustainability.

The insurance segment, however, remains a bright spot. Total loss frequency in the U.S. hit a record 23.8% in Q2 2025, driven by rising repair costs and catastrophic events like Hurricanes Milton and Helene, as reported by Autobody News. This trend bodes well for long-term volume, but near-term volatility is inevitable.

The Cramer Take: Buy the Dip or Wait for Clarity?

Copart's valuation metrics suggest it's trading at a discount to its intrinsic value and peers. The company's operational resilience-$4.65 billion in revenue, a 12.91% ROIC, and a 13.1% growth projection per Simply Wall St's analysis-is hard to ignore. However, the market's skepticism is not unfounded. Near-term challenges include:
1. Margin pressure: A shift in processing strategies and rising operational costs could weigh on gross profit margins (currently 45.18%), as noted by Autobody News.
2. Execution risks: Can Copart maintain auction liquidity and buyer diversity, especially in international markets where 40% of U.S. auctions now involve international buyers (per the CPRT financial ratios)?
3. Macro headwinds: A small drag from the growing uninsured population and potential softening in total loss frequency could disrupt growth.

For the aggressive investor, CPRT's undervaluation and long-term growth narrative make it a compelling buy-the-dip opportunity. But for the cautious, the stock's near-term volatility and execution risks warrant a wait-and-see approach. The key will be watching Q3 2025 results for signs that Copart can stabilize its margins while scaling its AI-driven efficiency initiatives, as highlighted in the Simply Wall St analysis.