Chapter 1

The business, and the price

Copart runs the dominant online auction network for salvage and total-loss vehicles. It converts insurance claims into fees at a ~33% net margin, carries no meaningful debt, holds ~$4.8 billion of cash and investments, and grew revenue and profit in the mid-teens for a decade. The stock is down 57% from its May 2025 peak because, for the first time in years, its insurance auction volumes are shrinking. This report exists to answer one question: whether that de-rating hands a durable, founder-run compounder to patient buyers at a price that finally carries a margin of safety — or whether the market is correctly repricing a business whose volume engine has stalled.

What Copart does

Copart is a two-sided marketplace, not a car dealer. Insurance companies whose policyholders total a vehicle assign the wreck to Copart; Copart stores it, clears the title, photographs it, and sells it through its VB3 online auction to a global pool of registered buyers — dismantlers, rebuilders, dealers, and exporters [1]. In most markets it acts as an agent and keeps a fee rather than buying the car, so it takes a cut of the transaction without carrying inventory risk on the vehicle itself.

The seller base is concentrated by design: insurers supplied 81% of the vehicles Copart processed in fiscal 2025 [2]. That is the company in one line: when a car is written off, Copart is where a large share of the salvage flow in the United States and a growing list of international markets gets liquidated. The buyer network is genuinely global — 69.8% of U.S. vehicles sold in fiscal 2025 went to a buyer outside the vehicle's home state, and 38.8% to international members [3].

The economics are a fortress

For a support-services company, Copart's margins read like a software business. Fiscal 2025 generated $4.65 billion of revenue, a $1.70 billion operating profit (a 36.5% margin), and $1.55 billion of net income — 33 cents of profit on every revenue dollar [4]. Cash conversion is high: operating cash flow was $1.80 billion, and after $569 million of capital spending — most of it land — free cash flow was $1.23 billion [5].

Source: FY2025 Annual Report (Form 10-K), Consolidated Statements of Income [6], Balance Sheets [7] and Cash Flows [8].

The balance sheet is the part that matters most for a reader worried about permanent loss. At July 31, 2025 Copart held $2.78 billion of cash and $2.01 billion of held-to-maturity securities against negligible borrowings [9]; interest paid during the whole year was just $2.0 million [10]. This is a debt-free company sitting on roughly $4.8 billion of cash and investments, funding its own land-buying out of operating cash flow. The chance of financial distress here is remote; whatever the bear case turns out to be, it is not a solvency case.

A decade of compounding, then a stall

The reason Copart earned a premium multiple for years is visible in the trend. Revenue rose from $2.21 billion in fiscal 2020 to $4.65 billion in fiscal 2025 — a 16% annual rate — and net income grew slightly faster, at 17% a year, as the agency model let profit outrun revenue [11][12].

Source: FY2025 Annual Report, Consolidated Statements of Income for FY2023–FY2025 [13]; FY2022 Annual Report for FY2020–FY2022 [14].

That trend has broken at the top line. In the third quarter of fiscal 2026, Copart's global insurance unit volume fell 2.7% year over year, and its U.S. insurance volume — the core of the business — fell 4.2% [15]. For a company whose entire investment case is that salvage volumes compound over time, units going backwards is the fundamental change. Management's position is that the long-term algorithm is intact — gradual declines in accident frequency more than offset by rising total-loss frequency as repair costs climb — and attributes the near-term softness to insurer policy-mix shifts and consumers trimming coverage as premiums rise [16]. Whether that is a pause or a plateau is the crux the rest of this report has to weigh; consensus now models roughly flat revenue and earnings for fiscal 2026, versus the mid-teens growth investors had extrapolated.

The market has already voted

The re-rating has been severe and orderly rather than a single-day crash. From an intraday high of $63.84 on May 16, 2025, the shares fell to $27.28 by July 15, 2026 — a 57% decline that has continued into new lows through mid-2026.

Source: company share-price history, split-adjusted closes as reported. Intraday peak of $63.84 reached May 16, 2025.

What the drawdown has done to the valuation matters for the reader this report is written for. At $27.28, Copart's roughly 967 million shares are worth about $26 billion. Net of the $4.8 billion cash-and-investments pile, the enterprise is valued near $21.6 billion — about 12.7 times fiscal 2025 operating income and 17.2 times trailing earnings of $1.59 per diluted share [17][18]. For a business that spent most of the last decade above 30 times earnings, a high-teens multiple on a debt-free, cash-rich franchise is a different proposition than it was at the peak.

Source: derived from reported financials (FY2025 10-K [19][20]) and a $27.28 closing price on July 15, 2026.

A counterweight to the "cheap now" read sits in the same numbers. Consensus already models fiscal 2026 earnings roughly flat with fiscal 2025, so a high-teens multiple is not being paid against a still-growing stream; the low end of the published analyst target range still sits above the current price, which means the sell-side has yet to fully mark the stock to the volume trend. If insurance units keep declining, today's 17 times earnings will look less like a discount and more like a fair price for a no-growth annuity. The valuation chapter will take that apart; the point for now is that the margin of safety, if it exists, comes from the de-rating, not from a cheap starting multiple on rising numbers.

Founder control, and a change at the top

Copart is founder-anchored in a way that matters for alignment. Willis J. Johnson — founder of Copart, its chief executive from 1982 until 2010 and its chairman since 2004 [21] — beneficially owns 5.75% of the shares, and co-founder A. Jayson Adair owns a further 3.14%; together the two founders hold roughly $2.4 billion of stock at the current price [22]. The proxy is explicit that the founders' standing among the largest holders is meant to keep management focused on long-term value [23]. That is real skin in the game — the kind a value investor tends to want before trusting a management team through a rough patch.

The alignment comes with a live governance question. In June 2026 Copart announced that co-founder Jay Adair would return as chief executive officer, with Jeff Liaw — who had run the company since 2022 — moving to an advisory role at the end of July 2026; the shares fell several percent on the news, which arrived unprompted between earnings dates. A founder stepping back in as the volume trend turns down can read as conviction or as instability, and the interpretation is not yet settled. It deserves its own treatment rather than a verdict here.

What this report has to resolve

The pieces sit in tension in a way that suits a patient, downside-first reader. On one side: a debt-free, cash-rich, founder-run marketplace with a genuine network and a 57% price cut behind it. On the other: the volume engine that justified owning it is, for now, running in reverse, and the multiple is no longer obviously cheap once flat forward earnings are in view. The through-line for everything that follows is whether the drawdown has restored a margin of safety in a durable compounder — or has correctly priced the end of its growth. Resolving it means testing the durability of the moat, the real trajectory of salvage volumes, the credibility of a management team in transition, and the price against a range of volume outcomes rather than a single forecast.

This chapter has established what the company is, how it earns, the strength of its balance sheet, and the shape of the sell-off. It has deliberately left the detailed three-year financials and forward estimates, the competitive dissection, the management record, and the valuation math for the chapters built to do each properly.