Copart: A Hidden Gem in a Temporary Slump – Now’s the Time to Buy

Copart Inc. (CPRT) has long been a stalwart in the salvage vehicle auction industry, leveraging its global scale and technological edge to dominate a niche market. Yet, recent market volatility has pushed the stock into a temporary downturn—a prime opportunity for investors to buy this undervalued asset at a discount. Let’s dissect Copart’s Q3 2025 results and valuation to uncover why now is the time to act.

Q3 Results: A Minor Setback in an Otherwise Strong Narrative

Copart reported Q3 revenue of $1.2 billion, a 7.5% year-over-year increase but slightly below estimates. While this dip may have spooked short-term traders, the fundamentals remain robust:
- EPS hit $0.42, matching expectations, with net income up 6.4% to $406.6 million.
- Cash flow from operations surged to $1.36 billion year-to-date, fueling a $2.37 billion cash hoard—a 57% increase from 2024.
- International markets grew, with Germany and the UK transitioning to consignment models, boosting margins.

The slight revenue miss stemmed from a 2.1% decline in vehicle sales revenue and a 9.3% rise in service revenue that still fell short of estimates. However, these figures are overshadowed by Copart’s $1.36 billion in operating cash flow and its dominance in high-margin services like Title Express, which streamlined over 1 million units annually.

Valuation: A Discounted Growth Leader

Copart’s valuation metrics scream undervalued when compared to broader markets and its peers:
- P/E ratio of 36.95 vs. a sector average of 43.20. This suggests the market is underpricing its growth potential.
- P/B ratio of 8.37 appears elevated, but this reflects the value of its digital platforms (e.g., VB3 virtual auctions) and global infrastructure, which aren’t fully captured on the balance sheet.

Analysts are split but mostly constructive:
- Average target price: $62.59 (3% upside from $60.66).
- GuruFocus GF Value: $59.61, but this ignores Copart’s 20%+ ROE and industry-leading liquidity.

Why the Downturn is Temporary

1. Tariff Tailwinds: U.S. total loss ratios (TLRs) hit a record 23.8% in Q2, driving more vehicles to Copart’s auctions. While Q3 saw moderation, tariffs remain a long-term catalyst for higher TLRs.
2. Global Expansion: Copart’s Purple Wave partnership (8% GTV growth) and VB3 platform are unlocking new markets. The company’s 11-country footprint ensures diversification against regional headwinds.
3. Operational Efficiency: Despite 10.2% higher operating expenses, margins remain robust (36.7% operating margin). The dip in Q3’s operating income was due to strategic reinvestment, not slippage in execution.

The Catalysts Igniting a Rebound

• Q4 Holiday Surge: Seasonal demand for salvage vehicles typically peaks, with insurers liquidating pre-holiday damage claims.
• Title Express Momentum: Zero carrier reversion rates signal strong client retention, reducing administrative costs and boosting returns.
• Debt-Free Flexibility: With $2.37 billion in cash, Copart can acquire smaller competitors or invest in tech without dilution.

Risks, But Manageable

• Trade Tensions: Retaliatory tariffs could disrupt international flows, though Copart’s buyers in Eastern Europe, the Middle East, and Africa are less exposed.
• Margin Pressures: Rising facility costs must be monitored, but Copart’s scale allows it to negotiate better terms than rivals.

Final Call: Buy the Dip

Copart’s valuation is out of sync with its fundamentals. The stock trades at a discount to its growth trajectory, with a P/E ratio well below sector peers and a cash pile that could fund dividends or buybacks. The Q3 miss was minor and temporary—a hiccup in a long-term story of margin expansion and global dominance.

Actionable Takeaway:
- Entry Point: Buy at $60.66, with a $65 target (17% upside) by year-end.
- Hold for: 12–18 months to capture tariff-driven TLR growth and margin improvements.

This is a once-in-a-cycle opportunity to own a cash-rich, high-margin leader at a discount. Don’t let temporary noise distract from Copart’s enduring value.

Final Note: The market often overreacts to minor misses. For investors with a long-term horizon, Copart’s valuation and cash flow make it a buy at current levels. Act now before the rebound begins.