Copart's Dip Presents a Rare Buying Opportunity: Strong Fundamentals, Rising Total-Loss Vehicles, and Undervalued Potential

The stock of Copart, Inc. (NASDAQ:CPRT) has stumbled over the past six months, down nearly 14.5% since January 2025. But beneath the volatility lies a company with 19% return on equity (ROE), accelerating earnings growth, and tailwinds from a surge in total-loss vehicles—driven in part by global trade policies. This disconnect between fundamentals and stock price suggests a compelling entry point for investors willing to look past short-term noise.

The Case for Copart: Strong Fundamentals in a Tailwind Industry

Let's start with the numbers. Copart's Q1 2025 results showed 12.4% year-over-year revenue growth, driven by a 14.8% jump in service revenue and a 27% surge in BlueCar segment sales (targeting banks, rentals, and fleet sellers). Meanwhile, net income rose 8.9% to $362.1 million, with diluted EPS hitting $0.37—beating estimates by $0.03.

Despite these positives, the stock has been hammered. Why? Partly due to rising operational costs: facility expenses jumped 21.6%, while G&A costs soared 57.9% on higher salaries and tech investments. Yet these are manageable headwinds in a business model with $5.9 billion market cap resilience and a five-year total return of 197%.

Industry Tailwinds: Total-Loss Vehicles and Tariffs

Copart's core business—selling totaled vehicles via auctions—is booming. U.S. total-loss frequency hit a record 23.8% in Q2 2025, driven by rising repair costs and catastrophic weather events like hurricanes. This means more vehicles are being declared totaled, funneling more inventory to Copart's platforms.

Here's where tariffs come in. While trade tensions often spook investors, Copart could benefit indirectly. Higher repair costs (from tariffs or supply chain strains) increase the likelihood of a vehicle being totaled. Meanwhile, tariffs on pre-accident vehicles might lift their residual values, improving auction margins.

The Disconnect: Why the Stock Is Lagging Fundamentals

The recent selloff appears overdone. Consider:
- ROE: At 19%, Copart's profitability is elite for a service-based company.
- Growth Drivers: The BlueCar segment and international markets (up 11% in fee units) are expanding rapidly.
- Valuation: Despite a P/E of 40.12, this reflects growth expectations—not overvaluation.

Investors have reacted to short-term costs, not the long-term story. For example, hurricane-related expenses are one-time drags, while the Title Express platform (reducing carrier admin costs) and Purple Wave initiative (targeting non-insurance sellers) are structural wins.

Buy the Dip: Key Catalysts Ahead

• Tariff Impact: If trade disputes escalate, total-loss frequency could rise further.
• Market Share Gains: Copart's tech-driven platforms (e.g., AI-powered bidding tools) are hard to replicate.
• Global Expansion: Emerging markets in Africa and the Middle East offer untapped growth.

Risk Factors and a Prudent Caution

No investment is risk-free. Copart's stock could face headwinds from:
- Cost Inflation: If facility or labor costs outpace revenue growth.
- Regulatory Uncertainty: Trade policies could shift abruptly.
- Market Saturation: Competition in core markets may intensify.

Final Analysis: A Buy at Current Levels

Copart's -14.5% six-month decline has created a rare opportunity. With strong ROE, accelerating earnings, and industry tailwinds from rising total-loss vehicles, the stock now offers a 4.3% dividend yield (if reinstated; the company suspended it in 2023 but could resume it with improved cash flow).

Investors should buy the dip, especially if the stock approaches its June 2025 low of $47.33. The $50–$55 range offers a solid entry point, with a $65–$70 price target over the next 12–18 months, assuming earnings momentum resumes.

In a market obsessed with short-term noise, Copart's fundamentals shine. This is a stock to own for the next economic cycle.

Disclosure: This article is for informational purposes only. Always conduct your own research before making investment decisions.