Chapter 2

Financials and Estimates

Three years of Copart's statements show a franchise still growing revenue at low-double digits but converting less of each dollar to operating profit: operating margin has slipped from 42% at the FY2021 peak to 36.5% in FY2025 [1]. Free cash flow still reached $1.23B on a debt-free balance sheet holding roughly $4.8B of cash and investments [2]. Consensus models a flat FY2026 — which the reported nine months already show — then a return to mid-single-digit growth in FY2027.

Three years of growth, decelerating

Revenue rose from $3.87B in FY2023 to $4.65B in FY2025, and net income from $1.24B to $1.55B [3]. The dollars still compound; the rate does not. Year-over-year revenue growth ran +30.0% in FY2022 — the year used-vehicle prices and salvage volumes surged out of the pandemic — then settled into a narrow +9.5% to +10.5% band for three straight years [4].

Source: FY2021–FY2025 10-Ks, Consolidated Statements of Income [5].

The growth is broad-based by geography but uneven in mix. U.S. service revenue — the core salvage-auction fee stream — grew 10.4% in FY2025, and international service revenue 18.9% [6]. International vehicle sales — cars Copart buys and resells on principal rather than auctions on consignment — fell 18.5%, which management attributes to sellers switching to the lower-risk consignment model [7]. That shift lowers reported revenue per transaction but carries almost no inventory risk, so it flatters margin quality even as it dampens the top line.

Source: derived from FY2022–FY2025 10-Ks, Consolidated Statements of Income [8].

Where the margin went

Copart discloses its cost structure as a share of revenue, and the trend is the clearest signal in the statements. Facility operations expense — labor, transport, and yard costs — rose from 39% of revenue in FY2023 to 42% in FY2025, while operating income fell from 39% to 36% [9]. General and administrative expense also climbed, from 7% to 9% of revenue over the same span [10].

Source: FY2025 10-K, MD and A results-of-operations percentage table [11]. Figures are company-rounded to whole percentages.

Part of the FY2025 step-down is identifiable and non-recurring. Facility operations expense rose $234M, and management attributes roughly $56M of the U.S. increase to one-time catastrophe costs — subhaul, overtime labor, security, and travel — tied to Hurricanes Helene and Milton [12]. Stripping that $56M back would lift FY2025 operating income by about 1.2 points of margin, most of the year-over-year decline. The remainder is genuine cost inflation in labor and facilities as the yard network expands.

The compression appears to have paused. Through the first nine months of FY2026, operating income was $1,283.7M on revenue of $3,513.8M — an operating margin of 36.5%, identical to the full FY2025 figure and steady against the prior-year nine months [13]. A reader watching for whether costs keep outrunning revenue has, so far, an answer of no — the margin has stabilized rather than continued to fall.

The cash machine and an interest-income offset

Operating cash flow reached $1.80B in FY2025, up from $1.36B two years earlier; after $569M of capital spending, free cash flow was $1.23B [14]. That is 79% of net income converted to cash — a respectable ratio understated by Copart's habit of buying land: capital expenditure has run near $500M–$570M a year, most of it land and new yards, which is growth investment rather than maintenance [15].

Source: FY2021–FY2025 10-Ks, Consolidated Statements of Cash Flows [16].

The reason net margin held while operating margin fell sits below the operating line. Net interest income grew from $65.9M in FY2023 to $178.9M in FY2025 as the company's cash and held-to-maturity securities earned higher yields [17]. That $113M swing offset most of the operating-margin drag, so net margin actually rose — from 32.0% in FY2023 to 33.4% in FY2025 [18]. The fortress balance sheet is now an earnings contributor in its own right; the corollary is that a chunk of Copart's profit growth is rate-sensitive rather than operational, and would fade if short rates fall.

The balance sheet, and a new use for it

At July 31, 2025 Copart held $2.78B of cash and $2.01B of held-to-maturity securities — about $4.8B — against total liabilities of $883M and effectively no debt; interest paid for the year was $2.0M [19]. For an investor who wants the chance of bankruptcy near zero, the solvency question is not close: the company could absorb years of losses without external funding.

What changed in FY2026 is what management chose to do with that cash. After years of negligible repurchases, Copart bought back 43.4 million shares — about 4.5% of the company — for roughly $1.65B across the January and April quarters, including $1.43B in the April quarter alone [20]. Shares outstanding fell from 967.5 million to 925.8 million between July 2025 and April 2026 [21]. Even after that outlay the balance sheet remains a fortress: $3.35B cash plus $846M in securities, about $4.2B, and still no debt [22].

Source: Q3 FY2026 10-Q, balance sheet and statement of stockholders' equity [23]; [24].

The pivot matters twice over: it is the first material use of the cash pile, and it puts a floor under per-share earnings even if net income stays flat. It also complicates the earlier read that management simply lets cash accumulate — the capital-allocation record now has a large, recent, and testable data point to weigh against the price paid and against management's conviction.

What consensus assumes

The forward estimates describe a pause, not a plateau. For FY2026, the 13-analyst consensus is EPS of about $1.58 and revenue of $4.64B — essentially flat against FY2025 [25]. That flat year is not really a forecast anymore: the reported nine months already show revenue of $3.51B versus $3.52B a year earlier and net income within $1M of prior year, so the full-year outcome is largely locked [26]. The real assumption is in FY2027, where consensus pencils in revenue of $4.83B (+3.9%) and EPS of about $1.68 (+6.2%) — a re-acceleration to mid-single digits, with EPS outgrowing revenue partly because of the shrinking share count.

Sources: FY2025 actuals — FY2025 10-K, Statements of Income [27]; FY2026–FY2027 — consensus analyst estimates, as of July 2026.

The gap between that forecast and the share price is the chapter's open question. Every published analyst price target sits above the $27.28 quote: the low is $32, the mean $40.9, the high $55 — implying the sell-side sees 17% to 100% upside on a stock it expects to earn roughly flat this year.

Source: consensus analyst price targets and last close, as of July 2026.

Two readings fit the same numbers, and the estimates alone do not settle them. If the insurance-unit softness is the cyclical pause consensus assumes, then flat FY2026 earnings on a debt-free, cash-generative franchise repurchasing its own stock imply the de-rating has overshot the fundamentals, and the targets are directionally right. If the unit decline is structural — share ceded to competitors, or a durable step-down in claims frequency — then FY2027's re-acceleration does not arrive, estimates fall toward the price rather than the price rising toward the targets, and the sell-side has simply not marked the stock yet. The financials establish that the pause is real and already in the numbers; whether it ends is a question for the demand and competitive analysis that follows, not one the income statement can answer.