Hook & thesis.
Copart (CPRT) remains the default marketplace for insurance-totaled vehicles. Its VB3 virtual bidding platform, scale (over 3.5 million transactions a year) and a roster of ~750,000 registered buyers create a two-sided network that is hard to replicate quickly. The business is cash-rich, asset-light and benefits from repeat supply from insurance partners (roughly 80% of vehicle volume). At ~ $38.50 today, Copart trades at a pragmatic multiple for a business with strong operating margins and consistent free cash flow - not a hyper-growth multiple, but one that rewards steady execution.
My trade idea: take a position on the long side on a measured pullback. I outline an entry, stop and target ladder below along with the fundamental case and the risks that would make me exit.
What Copart does and why the market should care.
Copart runs an online salvage-vehicle auction. It connects sellers - predominantly auto insurers - with buyers that include dismantlers, rebuilders, individuals and used-vehicle retailers via VB3. The company operates across North America, Europe and the Middle East. Key structural points:
- Supply stickiness: ~80% of vehicle volume comes from insurers. That creates recurring supply and predictable consignment flow.
- Scale and network effects: ~750,000 registered buyers and millions of transactions a year concentrate liquidity on Copart’s platform, which in turn draws more sellers.
- Fee-based economics: Copart typically consigns vehicles and collects transaction fees based on final selling price - a model with high operating leverage when volumes and pricing are stable.
Why this matters to investors: marketplaces with durable supply relationships and deep buyer liquidity can deliver outsized cash conversion. Copart shows that in the numbers.
Recent financials - the clean evidence.
Usefully recent results show consistent revenue and profitability. In the fiscal quarter ending 10/31/2025 (Q1 fiscal 2026), Copart reported:
- Revenues: $1,155,030,000.
- Operating income: $430,694,000 (implying an operating margin in the mid-30% range).
- Net income (continuing operations): $402,210,000 and diluted EPS of $0.41 for the quarter.
- Net cash flow from operating activities: $535,253,000.
Quarterly revenues across the most recent reported periods have been roughly stable to improving: $1.21B in the quarter ended 04/30/2025, $1.163B in the quarter ended 01/31/2025 and $1.155B for the most recent quarter. Net income has been in the ~$0.35B - $0.41B quarterly range, consistent with a profitable, scale-driven marketplace.
Cash generation is notable. The latest quarter shows operating cash flow of $535M; annualizing the recent quarterly net income (~$0.41 x 4 = ~$1.64 per share) and using diluted shares (~977.1M) implies annual net income near $1.61B. Multiplying diluted shares by the current price (~$38.53) gives an estimated market capitalization around $37.6B (this is an estimate using latest diluted share counts and the current price). That implies a forward-looking P/E in the mid-20s (roughly 23-25) on an annualized EPS run-rate - a reasonable band for a cash-generative marketplace with defensive characteristics.
Valuation framing.
Valuation in two quick steps:
- Share count anchor: latest diluted average shares reported in the quarter ended 10/31/2025 were ~977.1 million.
- Price anchor: the market snapshot shows a recent price around $38.50.
Multiplying those gives an implied market cap in the neighborhood of $37.6B. Using an annualized EPS of about $1.64 (0.41x4) implies a P/E in the low-to-mid 20s. For a business that generates strong operating margins (>35%) and robust operating cash flow (quarterly operating cash >$535M), a P/E in the mid-20s is neither expensive nor a deep discount - it's pragmatic. You are buying durable cash flow and a near-monopoly marketplace, not 30% revenue growth; therefore you should expect multiple compression if growth stalls or expansion if Copart leverages infrastructure into new geographies or monetization levers.
Trade plan - actionable and size-conscious.
Time horizon: position trade (3-12 months). Risk level: medium.
- Entry: Buy in the $36.50 - $38.50 zone. Prefer layering: 50% at $38.50, add 25% at $37.00, add remaining 25% at $36.50.
- Stop: $34.00 (hard stop). This limits downside to ~10-12% from the $38.50 anchor and respects recent support levels in price history.
- Near-term target (3-6 months): $45.00 - take partial profits (roughly 40%).
- 12-month target: $55.00 - holding 60% with trailing stops (move stop to breakeven after $45.00 is reached and tighten to 15% under market price thereafter).
Position sizing: no more than 4-6% of total portfolio on initial full allocation (all-in across layers). Adjust size relative to conviction and overall portfolio risk budget.
Catalysts (what could drive the trade higher).
- Better-than-expected revenue or margin progression in upcoming quarters, driven by higher auction fees or faster buyer activity.
- Acceleration in international volumes as European and Middle East operations gain share.
- New monetization on VB3 or complementary services (transportation, salvage valuation tools) that raise take-rate.
- Macro tailwinds for used vehicle prices or higher total-loss frequency that expand insurer consignments.
Risks and counterarguments.
No trade is without risk. Below are the main downside scenarios and a balancing counterargument.
- Used-vehicle price volatility: Copart’s fees are tied to sale prices. A sharp decline in used-car prices or weaker demand could compress revenues and margins.
- Insurer behavior and regulatory changes: The business depends on insurers consigning totaled vehicles. Changes in salvage-title regulation, insurer disposition strategies or consolidation among insurance partners could reduce supply or bargaining dynamics.
- Competition and new entrants: Large aftermarket platforms or private buyers could attempt to bypass auction channels, or competition could pressure fees if liquidity fragments.
- Market sentiment and institutional flows: Significant selling by large holders or fund redemptions could pressure the stock - there have been notable blocks reported historically which can weigh on near-term price action.
- Operational risk: Platform outages, fraud, or title authenticity issues could damage buyer confidence and reduce liquidity.
Counterargument: the case for caution is reasonable - Copart is not immune to macro cycles. If collision frequency declines meaningfully or insurers adopt more direct-to-buyer channels, growth could slow and the market could re-rate lower. Institutional selling or multiple compression could create a longer drawdown even if fundamentals remain solid.
What would change my mind?
- I would reduce or close the position if Copart reports a sustained decline in registered buyer activity or a meaningful drop in selling prices across multiple quarters.
- I would change my thesis if operating cash flow meaningfully deteriorates (quarterly operating cash consistently below $300M versus the recent $535M) or if liabilities unexpectedly rise relative to equity.
- Conversely, I would add to the position if management reports material fee-rate expansion, higher buyer ARPU, or clear success in new geography monetization that accelerates revenue growth above current run-rate trends.
Conclusion - clear stance.
Copart is a high-quality, cash-generative marketplace with defensible supply relationships and a sticky buyer base. At ~ $38.50 the stock offers a reasonable entry for a position trade looking for 20-40% upside over 3-12 months, with the trade plan above providing clear risk controls. This is not a speculative sprint: you are buying consistency and optionality - stable core margins, strong operating cash flow and the ability to scale fees and geographies over time. Keep an eye on used-vehicle pricing, insurer supply patterns and any structural regulatory shifts. Those are the things that would prompt me to materially change my view.
Disclosure: This is a trade idea and not individualized financial advice. Size positions to your risk tolerance and check your tax/fees before trading.
Key readouts: Q1 (10/31/2025) revenue $1.155B; quarterly operating cash flow $535M; diluted EPS $0.41; diluted shares ~977.1M. Entry $36.50-$38.50, stop $34.00, targets $45 / $55.