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I last reviewed Copart (CPRT) in this September 10, 2022 post at which time I disclosed the purchase of an additional 100 shares in the FFJ Portfolio. Following that purchase, my total CPRT exposure consisted of 450 shares.
On November 4, 2022, CPRT initiated a 2-for-1 stock split thereby doubling my holdings to 900; the share price was cut in half so the stock split had no overall impact on my total investment.
CPRT once again initiated a 2-for-1 stock split on August 21, 2023 thereby bringing my exposure to 1800 shares. I have, however, periodically acquired additional shares so my total exposure is currently 2400 shares; the most recent purchase was @ ~$43.80 on August 9, 2023.
In addition to acquiring shares for the FFJ Portfolio, I have acquired additional CPRT shares for a young investor I am helping on their journey to financial freedom.
I now revisit CPRT given the September 14 release of Q4 and FY2023 results.
Business Overview
Investors unfamiliar with CPRT are encouraged to look at the company's website and review Part 1 of the FY2022 Form 10-K. The release of the FY2023 Form 10-K should occur within the next couple of weeks.
I also recommend Junk to Gold - From Salvage to the World's Largest Online Auto Auction as told by Willis Johnson, the founder of CPRT.
The book was written in 2014 at which time CPRT had generated:
- ~$1.46B in Revenue;
- ~$180 million of Net Income; and
- ~69 million of Free Cash Flow (FCF)
in FY2013.
Fast forward to FY2023, and CPRT generated:
- ~$3.9B in Revenue;
- ~ $1.238B of Net Income; and
- ~$0.848B of FCF.
Financials
Q4 and FY2023 Results
CPRT's FY2023 Form 10-K is not yet available. Its Form 8-K, however, provides a good high-level overview of the company's performance and can be accessed here.
CPRT has more than 200 facilities located in the U.S., Canada, the U.K., Brazil, the Republic of Ireland, Germany, Finland, the U.A.E., Oman, Bahrain, and Spain; the majority are located in the United States. At the end of Q3 2023, CPRT's net property and equipment totalled ~$2.711B of which ~$1.698B was land. Many of CPRT's locations, however, were acquired several years ago so the value of the land likely exceeds what is reflected on the Balance Sheet.
Liquidity
At FYE2023, CPRT has $3.6B of liquidity of which:
- ~$1.4B in investments and held-to-maturity securities;
- ~$1B in cash and cash equivalents; and
- ~$1.2B of credit capacity under the revolving credit facility.
At FYE2023, CPRT's TOTAL liabilities amounted to ~$750.4 million.
CPRT could have retired 100% of all its liabilities leaving it with ~$2.85B of liquidity!
In comparison, CPRT had $2.6B of liquidity at FYE2022 of which:
- ~$1.4B was cash and cash equivalents; and
- ~$1.2B was credit capacity under the revolving credit facility.
At FYE2022, CPRT's TOTAL liabilities amounted to ~$683.3 million.
CPRT could have retired 100% of all its liabilities leaving it with ~$1.9B of liquidity!
Credit Ratings
CPRT has no debt to rate.
Dividend and Dividend Yield
CPRT does not distribute a dividend.
In FY2013 - FY2022, CPRT's weighted average number of outstanding shares (in millions of shares) was 1,038, 1,050, 1,051, 977, 948, 968, 962, 955, 961, and 965. The diluted weighted average common shares outstanding in Q4 2023 was ~970.3.
CPRT generates ample Free Cash Flow (in millions of $) to repurchase a significant number of its shares. It has not done so in recent years since management considers the retention of funds for growth purposes to be the best means by which to maximize shareholder value.
Valuation
The valuation at the time of prior reviews is found in my September 10, 2022 post.
The share price at the time of that review was $116.11. We need to keep in mind, however, that CPRT has subsequently had two 2-for-1 stock splits.
When I last wrote about CPRT, I had just acquired additional shares @ $113.725 on September 8, 2022 after CPRT had just reported $4.52 and $4.46 in FY2022 diluted EPS and adjusted diluted EPS. Using these metrics, CPRT's diluted PE and adjusted diluted PE were ~25 and ~25.5.
Using my $113.725 purchase price and the forward-adjusted diluted EPS estimates from the brokers (as of September 9) which cover CPRT, I arrived at the following forward-adjusted diluted PE levels:
- FY2023 - 9 brokers - ~24.4 based on the mean of $4.67 and low/high of $4.37 - $4.95.
- FY2024 - 8 brokers - ~22.3 based on the mean of $5.11 and low/high of $4.70 - $5.42.
On September 10th, revisions to broker estimates resulted in a slightly more favourable forward valuation.
- FY2023 - 9 brokers - ~24 based on the mean of $4.75 and low/high of $4.55 - $5.05.
- FY2024 - 3 brokers - ~22 based on the mean of $5.17 and low/high of $5.00 - $5.27.
On September 15, I purchased additional shares at ~$43.80. The following are the forward-adjusted diluted PE levels using the forward-adjusted diluted EPS broker estimates:
- FY2024 - 11 brokers - ~31.1 based on the mean of $1.41 and low/high of $1.35 - $1.54.
- FY2025 - 6 brokers - ~28.1 based on the mean of $1.56 and low/high of $1.40 - $1.75.
CPRT is by no means a 'value' stock. This company is growing quickly and it has NO net debt! Investors should not, therefore, compare CPRT's valuation to that of companies in other sectors (eg. utilities, consumer non-cyclical).
Final Thoughts
Natural disasters are increasing in frequency and severity. This bodes well for CPRT in that insurance companies look to CPRT to help them recover what they can from vehicles on which insurance claims have been made.
While CPRT does face competition from privately owned Manheim (100 locations), publicly traded RB Global, Inc. and other smaller industry participants, none rival CPRT.
Within the past year, for example, RB Global acquired IAA, Inc.. Moody's and S&P Global assigned junk ratings to the local currency long-term debt of both companies. When you merge 'junk' with 'junk' you end up with '2junk'. Junk does not magically become investment grade!
At the other end of the spectrum, you have CPRT which has no net debt thus giving it ample flexibility to grow and enhance shareholder value without having to concern itself with debt repayment.
I view CPRT as an investment that has a strong probability of doubling in value within 5 years. If we use the simple Rule of 72, CPRT would need to generate an average total annual return of ~14.4%. If this seems unrealistic, consider that from September 15, 2013 to September 15, 2023, CPRT generated an average annual total return of ~26.6%. It may be difficult for CPRT to replicate this rate of return now that it is a much larger company than a decade ago.
Is this possible?
I don't know but I am not about to bet against CPRT and I plan to periodically acquire shares.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long CPRT.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
