Chapter 5

At $27.28 Copart trades at 17.2x trailing earnings and returns roughly 5.8% of its enterprise value in free cash flow — a decade-low multiple. On a Gordon-growth reading the price embeds only about 2–4% perpetual growth, against the ~15% a year the business compounded for a decade. The de-rating has built a real downside cushion. The gap up to the $40.9 consensus mean is a multiple re-rating that depends on the insurance-volume stall proving cyclical, not value already in hand.

The multiple today

Copart is priced like an average industrial, not the premium compounder it was a year ago. The equity is worth about $25.3 billion at $27.28 across 925.8 million shares [1]. Stripping out $4.2 billion of cash and held-to-maturity securities against no financial debt [2] leaves an enterprise value near $21.1 billion — 12.4x FY2025 operating income of $1,696.7 million [3] and 17.1x the $1,230.8 million of free cash flow the business threw off last year [4].

Source: share count and net cash from Q3 FY2026 10-Q balance sheet [5]; earnings, operating income and cash flow from the FY2025 10-K [6][7]; price and multiples derived.

Because consensus has FY2026 earnings essentially flat at $1.58 and FY2027 at $1.68, the forward multiple barely differs from the trailing one — 17.2x on the current year, 16.2x on next. This is not a company the market expects to grow into a rich price; it is one the market has already marked down to a low one.

One qualifier on the "E." Of the $1.59 in diluted earnings, roughly $0.15 is after-tax net interest income — the $178.9 million the balance-sheet cash earned in FY2025, taxed at the effective ~18% rate [8]. About a tenth of the earnings the multiple is levered to is interest on the cash pile, and it moves with rates, not with the auction business.

From premium compounder to market multiple

The re-rating is the story, more than any change in the numbers. Copart earned $1.59 in FY2025, up 14% on FY2024 [9] — yet the multiple the market pays for that dollar of earnings has more than halved. Through FY2021–FY2025 the stock traded between roughly 28x and 38x trailing earnings; at the May 2025 peak of $63.84 it fetched about 40x forward. At $27.28 it sits at 17.2x, a full turn below anything in the prior five years.

Source: fiscal year-end and peak closing prices from the price series; diluted EPS from FY2021–FY2025 10-Ks; ratios derived. Multiples use split-adjusted EPS and prices [10].

That compression — from a compounder multiple to a market multiple — is what the franchise's markdown looks like expressed as a valuation. The question a buyer at 17x faces is whether the growth that justified 30-plus times is paused or finished.

What $27.28 implies

A discounted-cash-flow lens turns the multiple into a growth rate. Holding free cash flow at the FY2025 level and running a simple perpetuity-growth model against the $21.1 billion enterprise value, the price backs out low-single-digit perpetual growth across a normal range of discount rates.

Source: Gordon-growth model, EV/FCF = 17.1x from figures above; illustrative, derived from the FY2025 10-K [11].

At an 8% cost of capital the price implies about 2% perpetual free-cash-flow growth; at 10%, under 4%. Set against operating cash flow that compounded roughly 15% a year over the last five years [12], the market is valuing Copart close to a no-growth annuity that keeps pace with inflation and little more.

Two adjustments pull in opposite directions and roughly cancel, which is why the low implied-growth read holds. The reported free-cash-flow base is flattered by the interest income noted above, which would erode if the Federal Reserve cuts — that argues the true operating cash yield is a shade lower. Against it, FY2025 free cash flow is depressed by $569.0 million of capital spending [13], much of it land-banking for future auction capacity rather than maintenance — so owner earnings on the existing footprint run higher than the headline. Netted, the conclusion is unchanged: the multiple prices stagnation.

The gap to consensus

Every published analyst target sits above the price: a $32 low, a $40.9 mean, a $55 high, against $27.28. The mean is not a claim that the business is worth more than it earns today — it is a bet that the multiple re-rates. At the $40.9 mean on FY2027 consensus of $1.68, the target implies about 24x forward earnings, most of the way back to the historical band. The arithmetic of the gap is a re-rating, and a re-rating turns on the volume outcome laid out in Cyclical or Structural.

The scenarios below bracket the range. They vary two things a buyer cannot know yet: where earnings settle once the insurance-unit stall resolves, and what multiple the market pays for the answer.

Source: illustrative scenarios; EPS and exit multiples are analytical assumptions, anchored to reported FY2025 earnings [14] and the historical multiple range shown above.

The spread is wide because both inputs move together: the case where volume never recovers is also the case where the multiple stays compressed, and the case where units grow again is the one that earns a premium multiple back. If the stall proves structural — a plateau at flat earnings and a 15x multiple appropriate to a no-growth quality name — the stock is worth around $24, modestly below today. If it proves cyclical and earnings resume mid-single-digit growth at a 20x multiple, value lands near $38, roughly the consensus mean. The bull outcome, near $56, requires both re-acceleration and a full return to the old multiple.

A blunt cross-check frames the asymmetry. Even if earnings hold flat at the FY2027 consensus of $1.68 and the multiple never re-rates, 17x holds the stock near $29 — about flat. The downside from here is bounded by a net-cash balance sheet, a ~5% free-cash-flow yield, and a buyback that has already retired shares: the count fell from 967.5 million to 925.8 million between July 2025 and April 2026, a 4.3% reduction in nine months [15]. The upside, by contrast, is optionality on a volume recovery the company has not yet demonstrated.

The read

At 17x earnings and a mid-single-digit free-cash-flow yield on a debt-free, cash-rich franchise, the price has moved from demanding perfection to pricing stagnation, and that shift is what puts a floor under the stock. The evidence for a margin of safety is the arithmetic above: the multiple embeds ~2–4% perpetual growth, the balance sheet and buyback cushion the downside, and the analyst range starts above the price.

The strongest fact against it is that a 17x multiple is not obviously cheap for a business whose unit volumes are declining. If the insurance-volume softness is structural share loss to IAA rather than a cyclical pause, flat earnings at 15x — the $24 case — is a fair value, not a bargain, and the gap to consensus stays unfilled. Buying here is buying the downside cushion; it is not buying the re-rating, which has to be earned.

What would resolve it is data, not narrative. Two consecutive quarters of stabilizing or growing U.S. insurance units would confirm the cyclical read and activate the base and bull cases; continued erosion against IAA would mark 17x as the right multiple rather than a discount. The valuation question, in the end, is the volume question wearing a price tag.