Financials

Financials — What the Numbers Say

Copart is a profitability outlier with weakening top-line momentum. The business has compounded revenue at a 12% CAGR over twenty years (FY2005 $448M → FY2025 $4,647M), but growth has decelerated from +9.7% in FY2025 to roughly +1% on a trailing-twelve-month basis through Q3 FY2026. Margins remain extraordinary: 36.6% operating margin, 33.5% net margin, and ~30% return on invested capital — figures that put Copart in a league of its own against named peers (RB Global, Openlane, Carvana, ACV, LKQ). Free cash flow ran $1.23B in FY2025 (26.5% of revenue), debt is effectively zero, and the company sits on $4.8B of cash. The market has noticed the growth slowdown: P/E has compressed from 37x in FY2024 to roughly 20x today (forward P/E 19.5x). The single financial metric that matters most right now is insurance-vehicle unit volume growth — without it, "monopoly economics + slowing volumes" becomes a value trap rather than a compounder.

2. Revenue, Margins, and Earnings Power

Copart's earnings power flows from a simple stack: take a fee on each vehicle moved through the VB3 online auction platform, and let scale compound. Roughly 81% of vehicles come from insurance-company sellers — when total-loss frequency rises (driven by repair-cost inflation, more electronics in cars, and severe-weather events), Copart's volumes rise. The income statement shows how that has played out: a doubling of revenue from FY2019 ($2.0B) to FY2025 ($4.6B), with operating margins lifting from ~35% to ~37%.

The shape is unusual: revenue marches upward almost without a stumble, dipping only modestly in FY2009 (Great Recession) and FY2015 (currency and timing). The 20-year revenue CAGR is 12.4%; the 20-year operating-income CAGR is 12.7%; the 10-year revenue CAGR is 15.0%. That is the math of a low-cyclicality, share-gaining toll booth.

Three observations on the margin curve. First, gross margin is range-bound (42–50%) because cost of revenue scales with operating volume — yard labor, towing, technology, and (in the U.K./Germany) principal-basis vehicle inventory. Second, operating margin has structurally stepped up from ~30% pre-2018 to ~37% today as fixed overhead has been levered across rising volume. Third, FY2021's all-time-high 42% operating margin reflected a unique tailwind (used-car price spike during COVID) that has not repeated; the company has come back to a more sustainable ~36–37% level.

The quarterly view tells the urgent story. Revenue growth held in the 10–14% range through early FY2025, decelerated through the year, and went negative in Q2 FY2026 (–3.6%) — the first year-over-year decline since the pandemic. Q3 FY2026 recovered to +2.1%, but the trajectory is unmistakably a step-down. Operating margins have held above 34% throughout, so this is a volume/price problem, not a cost problem — the right lens for the next four sections.

3. Cash Flow and Earnings Quality

Free cash flow is operating cash flow minus capital expenditures — the cash a business actually generates after the reinvestment needed to keep operating. Copart's earnings convert to cash, but the gap has grown because capex has stepped up sharply for land/yard expansion.

Operating cash flow has run consistently above reported net income for the past decade, a hallmark of clean accounting and modest non-cash add-backs (D&A, stock-based compensation). The gap from operating cash flow to free cash flow is capex — and that is where the story shifts.

The key earnings-quality finding: capex is now the main reason cash conversion is below 80%. Copart spent $569M on physical and digital infrastructure in FY2025 — about 12% of revenue, double the pre-2018 ratio. Management is buying land for yards (a recurring need given catastrophic-weather inventory surges) and expanding internationally. If you accept that this is maintenance + growth and not pure maintenance, near-term FCF understates the steady-state earnings power; if you treat it as the new normal, the FCF multiple is the right one to use.

4. Balance Sheet and Financial Resilience

Copart's balance sheet is unusual for a business with $3.7B of property, plant, and equipment: it has effectively no debt. The company carried ~$400M of senior notes from FY2015 through FY2021, paid them off in FY2022, and has run debt-free for four years.

The cash pile has gone from $1B in FY2021 to $4.8B in FY2025 — a ~$3.8B build that mirrors the post-tax free cash flow Copart kept after taking no major actions (no dividend, only token buybacks, no transformational M&A). Net cash now equals ~52% of shareholders' equity and ~15% of market cap, meaning $1 of CPRT stock today comes with ~$5 of net cash riding along.

5. Returns, Reinvestment, and Capital Allocation

Return on invested capital (ROIC) measures the after-tax operating profit a business earns on the capital it deploys — debt plus equity, less excess cash. Returns above 20% sustained over a decade are rare; above 30% is almost always a sign of structural advantage.

ROIC has hovered around 30% for seven straight years — best-in-class for any industrial business. But ROE and ROA are declining, not because returns on operating capital are falling but because the denominator is bloated by the cash hoard. As cash piles up earning ~4% Treasury rates, blended ROE and ROA naturally drift down — a capital-allocation signal, not a profitability one.

Two capital-allocation realities. First, between FY2005 and FY2017, Copart aggressively repurchased stock — the diluted share count fell from ~1.49B to ~948M (a 36% reduction). Second, since FY2018, buybacks have been minimal (often net positive issuance from employee stock plans) — and the share count has actually drifted up slightly to ~978M. Meanwhile, capex has tripled in absolute dollars. The company has chosen to pour cash into yards and operating capacity rather than return it.

6. Segment and Unit Economics

Standardized segment-level financials are not disclosed in granular form in this dataset — Copart reports two segments (U.S. and International) but does not publish segment operating margins in the standardized feed. From the 10-K narrative, U.S. operations dominate (~80%+ of revenue and an even higher share of operating profit), with International (U.K., Germany, Brazil, Canada, Spain, Finland, UAE, Oman, Ireland, Bahrain) carrying lower unit economics — partly because parts of those geographies operate on a principal basis (Copart owns the inventory) rather than the higher-margin agent model used in the U.S.

The unit-economics story that matters more than the segment split is mix: 81% of vehicles processed in FY2025 came from insurance-company sellers (vs 83% in FY2023) — meaning the non-insurance category (dealers, rentals, individuals, charities, finance, fleet) is growing slightly faster than the core insurance book, but insurance remains the dominant economic engine. The cycle drivers worth watching are: total-loss frequency, average selling price per vehicle, and catastrophic-event volume (Hurricanes Helene/Milton added meaningful volume in FY2025).

7. Valuation and Market Expectations

Valuation tells a clear story: the multiple has compressed substantially from the FY2020–FY2024 peak as growth has decelerated.

Compression is real and roughly 30–40% across every multiple. At 20x earnings, ~14x EBITDA, and a 3.9% free cash flow yield, Copart is now valued like a high-quality consumer-discretionary business of moderate growth, not the high-growth compounder it once was. The forward P/E of 19.5x is paired with consensus FY26 EPS of $1.58 (slightly down from FY25's $1.59) and FY27 EPS of $1.70 — implying the market is pricing roughly 5–7% earnings growth, not the historical low-double-digit pace.

The published analyst target is $41.44 — implying ~28% upside from $32.38 — which sits between this report's base and bull cases. Of 12 analysts surveyed, 6 carry buy/strong-buy, 5 are at hold, and 1 is at strong sell. The reasonable interpretation: the Street is willing to price moderate re-acceleration but not yet ready to underwrite a return to historical growth.

8. Peer Financial Comparison

The peer set is the five public competitors Copart names in its FY2025 10-K. They are not a like-for-like group: Copart is the high-margin agent-model auctioneer; RB Global is a hybrid auction conglomerate with heavy-equipment exposure; Carvana is a direct-to-consumer used-car retailer; Openlane (formerly KAR) is a wholesale dealer marketplace; LKQ is a parts dismantler/distributor; ACV is a fast-growing but still-loss-making digital dealer auction.

The peer gap that matters. Copart's 36.6% operating margin is more than 2x the next-best name (RB Global at 15.5%) and 5x LKQ's. ROIC at 30% is six times the peer median. No competitor at scale converts revenue to cash like Copart does, and no competitor approaches its balance-sheet posture (the only name with net cash is ACV — but on a tiny revenue base and at operating losses). The market currently prices CPRT cheaper on P/E than RBA (50x) and CVNA (50x), and only modestly above LKQ (13x) — i.e., the deserved premium for vastly better economics has narrowed substantially. That is either an opportunity (Copart re-rates back up if growth returns) or an honest signal (the market thinks Copart's growth is now in LKQ-like territory).

9. What to Watch in the Financials

What the financials confirm. Copart owns the best income statement in its industry — 36% operating margins, 30% ROIC, 26% FCF margins, and zero debt. Twenty years of compounding produced a fortress balance sheet with $4.8B of cash and almost no leverage. Earnings quality is high; cash conversion is supported (if not amplified) by elevated capex tied to physical yard expansion.

What the financials contradict. The "compounder" narrative no longer fits the most recent eight quarters. Revenue growth has slowed from low double-digit to roughly +1% on a trailing basis, with Q2 FY2026 the first negative comparison in years. The valuation multiple has accordingly compressed by ~30% from its peak. Capital allocation has been passive: cash sits, share count has crept up, and the buyback program is small relative to the cash on hand.

The first financial metric to watch is insurance-vehicle unit volume growth. If Copart prints even mid-single-digit volume re-acceleration in FY2026 second-half, the 20x P/E has room to re-rate toward 25x and the bull case has a path. If unit volume stays flat-to-down for two more quarters, the framing shifts from "monopoly compounder" to "monopoly cash machine" — still a defensible name, but consistent with a 15–17x multiple. Everything else in the financials hinges on which version is right.