Copart: A Temporary Stumble Amid Long-Term Dominance – Why Now is the Time to Buy

Investors in Copart Inc. (CPRT) were met with a slight revenue disappointment in Q3 2025, as the company reported $1.21 billion in revenue—$29 million below analyst expectations. Yet beneath the headline miss lies a story of enduring structural growth, strategic investments, and a business model primed to capitalize on secular trends. For long-term investors, this near-term stumble presents a rare entry point into a company poised to thrive in a $20 billion salvage vehicle market.

The Q3 Revenue Miss: A Snapshot of Near-Term Challenges

Copart's Q3 revenue shortfall stemmed from two primary factors. First, vehicle sales declined 2% year-over-year, with $12 million in out-of-period adjustments to U.S. gross profit weighing on results. Second, inventory levels fell nearly 10% globally, as faster cycle times and reduced low-value stock trimmed top-line momentum. Meanwhile, facility costs rose 12% due to hurricane-related expenses and storage expansions, highlighting the trade-off between short-term costs and long-term resilience.

But these are not existential threats. The miss was predictable in hindsight: insurance partners' shifts toward consignment models in select markets and cyclical softness in heavy equipment auctions (impacted by tariff uncertainty) created headwinds. As CEO Jeff Liaw noted, “Cyclical pressures, like rising uninsured drivers, are temporary. Historically, these trends reverse.”

Why the Long-Term Outlook Remains Unshakable

1. Rising Total Loss Rates: A Tailwind for Salvage Volumes
   The U.S. total loss frequency in Q3 hit 22.8%, up 100 basis points year-over-year, as vehicles grow more complex and repair costs soar. This trend is structural: every percentage-point rise in total loss frequency boosts Copart's salvage auction volumes. With repair costs projected to climb 5-7% annually, this tailwind is only accelerating.

2. Strategic Storage Investments: A Moat Against Storms and Competition
   

   
   
   Copart's $65 million acquisition of 40 acres in South Florida underscores its dominance in physical asset leverage. With hurricane seasons intensifying and competitors relying on third-party storage, Copart's vertically integrated network ensures it can handle surges in post-storm salvage volumes. This isn't just real estate—it's a moat.

3. Global Expansion and Technology: Fueling Margin Growth
   International service revenue surged 18% in Q3, driven by strength in Germany and the U.K. Meanwhile, AI-driven tools like image recognition and Title Express are slashing processing times and boosting insurance revenue. As Copart's BlueCar service (targeting fleets and banks) grows at 14% annually, its customer base broadens beyond traditional insurers.

Valuation: A Discounted Entry into a Cash Machine

Copart trades at 17x forward P/E, a discount to its five-year average of 22x, despite generating $560 million in free cash flow annually. Its $5.6 billion cash hoard (78% of liquidity) provides a safety net for acquisitions and dividends.

The data shows Copart's consistent outperformance, even as near-term growth moderated. Analysts still forecast 10% annual revenue growth through 2028, with earnings potentially hitting $2.1 billion.

Near-Term Catalysts to Watch

• Q4 Hurricane Season Impact: With 2025 expected to mirror 2024's active storm season, Copart's storage investments could deliver a revenue pop in late 2025 or early 2026.
• BlueCar and International Scaling: The fleet/fleet segment is underpenetrated, and Copart's 9% growth in international fee units suggests further upside.
• Share Buybacks: With $2.37 billion in cash, Copart could accelerate repurchases if shares remain depressed post-Q3.

Conclusion: A Buying Opportunity in a Leader's Mistake

The Q3 miss is a speed bump, not a detour. Copart's model—built on data-driven logistics, global scale, and physical asset dominance—is a compounding machine in a fragmented industry. At current valuations, the stock offers a rare blend of safety (cash-rich balance sheet) and asymmetric upside (structural tailwinds).

For investors with a 3-5 year horizon, the time to act is now. The market's short-term focus on the miss has created a buying opportunity in a company that's just getting started.

Action Item: Consider a position in CPRT at current levels, with a 12–18 month horizon. Set a stop-loss at $55 and target $70–$75 by 2026, assuming normalized growth and a reversion to historical P/E multiples.

The next earnings report will test whether Copart's investments are paying off—but the long-term story remains intact. This is a company that turns setbacks into setup for dominance.