A Compounder Halved

Copart: a compounder, halved

Copart runs the larger of two online auction platforms that insurers and other sellers use to dispose of totaled and salvage vehicles. It is debt-free, holds about $4.8 billion in cash and investments, earns 36% operating margins, and is still controlled by its founders. Yet the stock has fallen roughly 54% from its May 2025 peak — from about $64 to $29 — and now trades near 18 times earnings, well below the multiple it commanded for most of the past decade.

What Copart does

Copart connects sellers of damaged, salvage, and used vehicles with buyers through an internet-based auction platform, operating across the United States, United Kingdom, Germany, Brazil, Canada and several other countries [1]. It was incorporated in 1982, went public in 1994, and today connects roughly one million registered members across more than 185 countries to vehicles consigned at its physical yards [2] [3].

The economic engine is a marketplace, not a car dealership. Most revenue is service revenue — auction and auction-related fees charged to sellers and buyers on each transaction, recognized net rather than on the gross value of the car [4]. Service revenue was 85% of the FY2025 total; vehicles Copart buys and resells for its own account (mostly in the U.K.) make up the remaining 15% [5].

Who supplies the cars matters for durability. In FY2025, 81% of the vehicles Copart processed came from insurance companies [6]. When a car is damaged, the insurer's adjuster compares the cost of repair against the vehicle's pre-accident value less its salvage value; if repair costs more, the car is declared a total loss and assigned to a remarketer like Copart [7]. Because modern vehicles carry ever more expensive electronics, cameras, sensors and safety structures, a growing share of accidents cross that total-loss threshold — a slow, structural driver of the volumes Copart handles [8].

The competitive field is narrow. In North American salvage, Copart's principal rival is RB Global's Insurance Auto Auctions subsidiary; broader vehicle remarketing also includes Carvana, Manheim, OPENLANE and ACV Auctions, and dismantlers such as LKQ that can buy salvage directly and bypass the auction entirely [9]. In practice, salvage auctions in the U.S. are close to a two-firm market, built on hundreds of licensed vehicle yards, insurer relationships, and a national buyer base that are slow and costly to replicate.

The economics

Copart has compounded revenue at roughly 15% a year over the past four fiscal years, from $2.7 billion in FY2021 to $4.6 billion in FY2025, with operating income rising in step to $1.7 billion [10].

Source: total revenue derived from segment disclosures; operating income and the $4.6B / $1.7B FY2025 figures per the FY2025 Form 10-K [11].

The margins are the tell of a genuine marketplace: 36% operating and 33% net in FY2025 [12]. But the direction has softened. Operating margin has slipped every year since a pandemic-era peak of 42% in FY2021, as facility operating costs rose from 39% to 42% of revenue [13].

Source: derived from reported segment revenue and operating income, FY2021–FY2025 10-Ks; the 36% / 37% / 39% progression is stated directly in the FY2025 MD&A [14].

Cash generation is strong and improving in absolute terms: operating cash flow reached $1.8 billion in FY2025, up 22% [15]. Free cash flow of $1.2 billion converts about 79% of net income, held back by an unusually heavy capital program — Copart owns rather than leases most of its land, so it spends heavily on acquiring and developing vehicle yards.

A balance sheet built to survive

For an investor who wants the chance of failure near zero, the balance sheet is the headline. At July 31, 2025 Copart held $2.78 billion in cash and $2.01 billion in held-to-maturity securities — roughly $4.8 billion of liquid assets — against total liabilities of just $883 million, none of it financial debt [16]. Stockholders' equity is about $9.2 billion on $10.1 billion of assets, and the current ratio is above eight [17].

Source: FY2025 Form 10-K, Consolidated Balance Sheets [18]; operating and free cash flow per MD&A [19].

A company that carries no debt and sits on $4.8 billion of cash and Treasuries does not go bankrupt in any ordinary sense. The liabilities on the sheet are operating in nature — payables, deferred revenue, taxes, and small lease obligations [20]. Whatever risks this business carries, solvency is not among them.

Founders still hold the shares

Copart is not a professionally managed orphan; it remains founder-anchored. Willis J. Johnson founded the company in 1982 and is Chairman; A. Jayson Adair, a founder since 1992, is Executive Chairman, having moved out of the co-CEO seat in a planned 2023 succession that installed Jeffrey Liaw as CEO [21]. The company itself frames a "founder-led culture" as a core competitive advantage [22].

The alignment is financial, not just rhetorical. As of October 2025, Johnson beneficially owned 55.7 million shares (5.75%) and Adair 30.6 million (3.14%) — together roughly $2.5 billion of stock at the current price — a combined stake larger than any single institutional position except Vanguard's index holdings [23]. Adair drew a salary of $1 in FY2025 [24]. Whether that alignment has produced disciplined capital allocation is a question for a later chapter; the ownership itself is real.

The drawdown and the de-rating

Copart is one of the great compounders of the modern market: a split-adjusted 15 cents at its 1994 debut became $64 by May 2025. Since that peak it has fallen about 54%, to $29 as of late July 2026, near its 52-week low.

Source: daily price data as reported; 2026 value is the 31 July 2026 close. Split-adjusted history.

Two things drove the re-rating, and both are visible in the numbers. First, growth has stalled: after years of low-teens expansion, quarterly revenue ran roughly flat year-over-year through fiscal 2026 (the second quarter down about 3.5%, the third up about 2%, per reported quarterly results). The FY2025 filing already flagged one mechanism directly — on the international side, some sellers shifted away from a purchase-contract model toward consignment, reducing reported volume [25]. Alongside that, insurers have been assigning fewer vehicles as elevated auto premiums led some drivers to trim coverage, and recent comparisons run against earlier catastrophe-driven volumes. Second, the margin compression above meant earnings grew more slowly than the headline suggests. Forward estimates now sit essentially flat — consensus EPS of about $1.58 for FY2026 against $1.59 delivered in FY2025.

Source: multiples derived from reported FY2025 earnings and balance sheet [26] and current market price (price data as reported).

That valuation reset deserves a fair hearing rather than a reflexive dismissal. A rule that avoids "high flyers and very expensive stocks" was built for a company priced at 40 times earnings; it does not obviously bind a debt-free, 36%-margin marketplace at 18 times, with a fifth of its market value in cash. The counter-fact is equally plain, and equally on the page: if insurance assignment volumes have entered a structurally slower era — and if driver-assistance and, eventually, autonomous vehicles reduce accident frequency over time — then a mid-teens multiple on flat earnings is not a bargain but a fair price for a maturing business.

The question this report works through

Copart is a debt-free, founder-controlled duopolist in salvage-vehicle auctions whose shares have fallen roughly 54% from their 2025 peak to about 18 times earnings; the question this report works through is whether that drop is a durable compounder available at an unusual discount, or the market correctly repricing slower insurance volumes and a permanently lower growth rate.

Everything that follows tests one side of that question or the other: how wide and durable the moat around the salvage duopoly really is; whether the recent volume and margin softness is cyclical or structural; what the founders and management have done with the cash the business throws off; and what the current price actually implies for future growth. The pieces that decide it — a fortress balance sheet, a narrowing competitive field, a genuine but slowing set of tailwinds, and a valuation that has already come a long way down — are all in view. What remains is to weigh them.