What's Next For Copart Stock?

The stock price of Copart (NASDAQ: CPRT), an online auto auction company, was up 10% on Friday, November 22. This can be attributed to the company’s upbeat quarterly results. Copart reported sales of $1.15 billion and earnings of $0.37 per share, compared to the consensus estimates of $1.10 billion and $0.37, respectively.

Looking at a slightly longer term, CPRT stock has seen a 66% rise from levels of around $38 in early 2022 to $63 now. This can primarily be attributed to:

1. a 57% rise in the company’s revenue from $2.7 billion in 2021 to $4.2 billion in 2024 (fiscal ends in July); and
2. a 7% rise in the company’s P/S ratio to 14.4x now, versus 13.5x in 2021; partly offset by
3. a 1% rise in total shares outstanding to 975 million

Copart earns revenue from auction fees and commissions on auctions. The company has seen an increase in volume lately due to the rising age of vehicles in the U.S. Also, the average revenue earned per car has also been trending higher due to fees optimization. This trend is expected to continue, and it’s likely that the company may see its top line grow at an average annual rate in the high single-digits. Looking at Q1, Copart’s revenue of $1.15 billion reflected a 12.4% y-o-y rise.

Copart’s operating income has risen 38% from $1.1 billion in 2021 to $1.6 billion in 2024. However, its operating income has declined from 42.2% to 37.1% over this period. The labor required at its yards, which has risen lately, is a large cost component for the company.

Looking at the stock performance, with 29% gains this year, CPRT stock has fared slightly better than the broader S&P 500 index, up 25%. However, the changes in CPRT stock over the recent years have been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 19% in 2021, -20% in 2022, and 61% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and geopolitical tensions, could CPRT face a similar situation as it did in 2021 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, CPRT stock looks appropriately priced. At its current levels of $63, CPRT is trading at 14.4x revenues, versus the stock’s average P/S ratio of 11.4x over the last three years. Given the rising costs and the valuation multiple already above the historical average, we don’t expect any meaningful upside for CPRT stock.

While CPRT stock looks like it is fully priced, it is helpful to see valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 11/25/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.