Copart: down 40%, but still not cheap

Copart is one of the highest-quality businesses I have analyzed, and the share price has fallen from $45.89 to $27.32. The price is still above what I think the business is worth today, because two things happened at the same time: the company bought back $1.6 billion of its own shares at far higher prices, and operating cost per car rose 12.7% in the latest quarter while U.S. volume fell.

At the October 9, 2026 close of $27.32, the shares trade 9.6% above my triangulated Base value of $24.91. The Bear value is $17.52 and the Bull value is $32.50. The required margin of safety (MOS), the discount to fair value I need before buying, is 35%, so the maximum buy price is $16.19. The shares would have to fall 41% to reach it. A 40% drop from the high is not the same as a bargain.

Route: SF-01 standard value. SF-07 and SF-13 do not apply: this is a net cash marketplace with roughly 79% of vehicles from insurance companies, not software and not an industrial. Economic classification: Quality Growth, 6/12 on the sector scorecard, so the engine is GROWTH_ADJUSTED_MULTIPLE. Primary method: normalized owner free cash flow times a multiple built from explicit premiums and penalties. Secondary method: a five-year DCF at 10%. Values are present fair-value estimates, not 12-month price targets. Owner free cash flow here excludes interest income on the cash pile, because the cash is valued separately.

What Copart is

Copart runs online auctions for damaged, salvage and used vehicles, with more than 250 locations in 11 countries and more than 4 million units sold a year. Sellers are mostly insurers (79% of vehicles processed in fiscal 2026), and buyers are dealers, rebuilders and exporters.

• The advantage is physical: land, yards and logistics that a rival cannot copy quickly, plus a global buyer base that pays more for each car.
• No single customer was above 10% of revenue, but sellers can and do leave. Copart lost an insurance customer in the U.S. this year.
• The company has no debt, $4.49 billion in cash and held-to-maturity securities, and a $1.25 billion revolver that is undrawn.

The latest quarter

Revenue per unit rose 5.4%, but global units fell 2.9% (U.S. insurance units fell 7.5%, and would have risen 2.3% without one lost customer). Operating expense per car rose 12.7%, as U.S. facility costs per unit rose 14.2% on long-haul delivery, Title Express and dedicated wholesale facilities. Total-loss frequency, the share of claims where the insurer writes off the car, reached a record 23.3% for a second quarter.

Over four years revenue grew 7.4% a year and free cash flow 10.8% a year, but operating margin fell every year, from 39.3% to 35.4%. FY2026 free cash flow of $1.27 billion is flattered by capex of $337 million, well under the $450 million five-year average.

Owner free cash flow, after the cash pile is taken out

Copart earned about $186 million before tax in interest and other income in FY2026. That income comes from $4.49 billion of cash, which I add back at full value, so counting it twice would overstate what the operating business earns. I also normalize capex and deduct stock pay.

Normalized owner free cash flow is about $965 million, or 20.7% of revenue. On the enterprise value of $21.0 billion that is a yield of 4.6%, or 21.8 times. The reported free cash flow of $1.27 billion against the $25.4 billion market value gives a more flattering 5.0%.

Cash, shares and the ACV deal

Copart repurchased $1.63 billion of stock in fiscal 2026, shrinking the Q4 weighted share count 4.7% from a year earlier. The shares retired were roughly 40 million, which implies an average price near $40 (my estimate, because the release does not state the price). At $27.32 those shares are worth less than was paid. The filing does not give the remaining repurchase authorization, which I mark UNAVAILABLE.

In September 2026 Copart agreed to buy ACV Auctions for $10.50 per share in cash, about $1.9 billion, with closing expected by the end of calendar 2026. It needs a majority tender of ACV shares and clearance under the Hart-Scott-Rodino Act. Management expects the deal to be roughly breakeven now and accretive in fiscal 2028. I value ACV at cost, so the $1.9 billion of cash and the $1.9 billion asset cancel, and I show the downside separately: if ACV were worth half its price, each unit would be worth about $1.02 less.

Primary valuation: owner free cash flow times a multiple

Copart is a Quality Growth company under the framework, so the multiple is built from a base and explicit premiums, not picked. The base for a very stable growing business is 13 times. I add premiums for returns on capital (about 28%), the net cash balance sheet and repeat economics, add a growth premium sized to the per-unit growth I expect, and subtract a risk discount for the lost customer, rising costs and the ACV deal.

The Base multiple of 20.5 times is 57% above the 13 times sector base, so the framework requires a DCF cross-check, which follows. It is also below the 30 times or more of free cash flow Copart has traded at in recent years (ESTIMATED from public data, not verified here), because the Base growth rate of about 5% a year in owner cash flow is well below the growth that earlier multiples paid for.

Base assumes the margin falls to 34% in FY2027 and then stabilizes, revenue grows 6% a year from FY2028 as pricing continues and international volume grows, and cash conversion is 73% of after-tax operating income. I do not assume further buybacks, so the unit count stays at 931.4 million.

The primary Base value is $26.28.

Sensitivity: value per unit

Secondary valuation: five-year DCF

The secondary Base value is $23.56. Three quarters of the DCF value sits in the terminal value, so this method is more sensitive to the discount rate than the primary one. It uses the same cash flow path, so it is not fully independent of the primary method. The two differ only in how they turn that path into a value.

History and growth diagnostics

Valuation history. At $27.32 the enterprise value is 12.7 times FY2026 operating income and 15.8 times after-tax operating income. Copart has traded at roughly 30 times earnings in recent years (ESTIMATED from public data, not verified here), so today's price is well below its own history, but the earnings growth that justified that history has slowed.

PEG (SM-19, diagnostic only). FY2026 earnings per share fell 2.5%, so the growth denominator is negative and PEG is not meaningful. Flag: PEG_NOT_MEANINGFUL. Growth type: NORMALIZING.

Free cash flow growth quality (SM-20, diagnostic only). Free cash flow per diluted share rose from $0.87 in FY2022 to $1.32 in FY2026, a compound growth of 11.1% a year (total free cash flow 10.8% a year, from $839 million to $1,267 million). Free cash flow margin rose from 24.0% to 27.1%, and cash conversion is 85% of net income. The flag is CAPEX_TIMING_DISTORTION: FY2026 capex was $337 million against $569 million a year earlier, which lifts the last point. Forward, my Base owner cash flow compounds at 4.8% a year from FY2026 to FY2031, from $0.965 billion to $1.219 billion. Forward free cash flow yield on enterprise value is 4.6% for FY2027E. Forecast reliability: MEDIUM, because volume and margin are both moving. Stress test: FY2028E owner cash flow 20% lower gives a primary value of $22.12, and 40% lower gives $17.97.

Valuation triangulation

The two methods differ by 10.9% of their midpoint, inside the 20% line where the framework flags a warning, so no divergence penalty applies. I weight them 50/50 because they use one cash flow path and the multiple is a judgment as well. The bias table at the end shows 70/30 and 30/70.

What is the market already pricing in?

Reverse valuation: at $27.32, the market value of $25.4 billion less $4.40 billion of net cash gives an enterprise value of $21.0 billion. Holding my Base cash flow, that price needs a multiple of 21.5 times on FY2028E owner free cash flow, against my 20.5 times. Holding my multiple, it needs FY2028E cash flow of about $1.07 billion, 5% above Base. So the market is pricing in a slightly better outcome than my Base: margin stabilization and revenue growth near 6% a year. It is not pricing in a collapse, and that is the reason the price is not a bargain.

Bear, base and bull scenarios

Bear: volume keeps shrinking, insurers move more volume to rivals, costs per car keep rising and the margin falls to 31%. The multiple falls to 14 times. Base: the lost customer is absorbed, pricing offsets volume, the margin settles at 34% to 34.5%, and ACV is neutral. Bull: international and non-insurance volume accelerate, costs per unit fall, the margin recovers toward 37% and the market again pays 26 times. Bear and Bull use the same discount rate and cash balance as Base, so each risk is counted once. The price sits closer to the Bull case than the Bear case, which is the wrong asymmetry for a buyer.

How the buy price is set

Confidence is B, which starts the margin of safety at 30%. I add 5 points for terminal value dependence and 5 for the character change from the ACV acquisition, and subtract 5 for the net cash balance sheet and exceptional returns on capital. The result is 35% and the maximum buy price is $24.91 x 65% = $16.19.

Even with the lightest margin of safety in the Confidence B range, the buy price is $18.68, 32% below the current price. This is a quality company that needs a much lower price, or evidence that margins have stopped falling, before the framework says buy.

Dividend and capital return

Copart pays no regular dividend. It returns cash through buybacks, $1.63 billion in fiscal 2026 and almost none in the prior four years, and the $1.9 billion ACV deal now competes for the same cash. Buying stock at about $40 and then buying a platform business at a premium does not show strong discipline, though both are modest against $4.49 billion of cash.

Reasons to own CPRT

• Returns and balance sheet. ROIC is about 28% with no debt and $4.4 billion of net cash.
• Pricing power. Revenue per unit rose 5.4% in the quarter and about 5.7% for the year, with average selling prices up 5.5%.
• International growth. International revenue rose 11.7% in the quarter at a 25.6% operating margin, and Copart is profitable in every international market.
• Structural tailwind in total losses. More expensive cars with more electronics push insurers to write off more vehicles, which supplies more inventory over time.
• Price below its own history. The enterprise value of 12.7 times operating income is far below recent years.

What could go wrong?

• Margin keeps falling. Operating margin has fallen every year since FY2022. Each point of exit margin is worth about $0.61 a unit.
• Customer and volume risk. Insurers supply 79% of vehicles. U.S. insurance units fell 7.5% in the quarter after one customer left.
• Competition. RB Global, through Insurance Auto Auctions, is the main U.S. competitor.
• Claims frequency. Collision claim frequency fell 3.4%. Fewer claims mean fewer cars even as the total-loss share rises.
• Capital allocation. The ACV acquisition, $1.9 billion in cash, is outside the core model and has not closed.

Management execution

Management built a wide moat and grew revenue 7.4% a year over four years. The record is weaker on costs: operating cost per car rose 12.7% in the quarter, and operating margin has fallen each year since FY2022. Management says it is targeting lower facility cost per unit. Management credibility scores 13/20.

Stock Analyza scorecard

Business quality is high because of returns on capital, the balance sheet and the physical moat. Growth and cash-flow quality score lower because volume and margins are both moving the wrong way.

The valuation score is low because the price is above Base and well above Bear, even though the two methods agree with each other.

Confidence score

Confidence is B (18/25), at the bottom of the B range. Valuation robustness is 3/5 because three quarters of the DCF is terminal value, and scenario dispersion is 3/5 because Bear and Bull are about $15 apart around a Base of $24.91. Normalized capex and cash conversion are estimates, which under the framework caps Confidence at B in any case.

What I would watch from here

Next review: the fiscal first quarter report, expected around late November 2026 (date not confirmed), and the closing of the ACV acquisition, expected by the end of December.

The three most important thesis breakers

1. Operating margin falls below 33% without a clear cost plan, because Base assumes it stabilizes at 34%.
2. More insurers move volume to a competitor, which turns the lost customer into a trend.
3. The ACV acquisition needs more capital or is written down, which would show that cash is being deployed outside the core moat.

Adversarial review

I recomputed every table from the listed inputs. The arithmetic reconciles. Free cash flow, operating income, shares and cash come from the filing and the earnings release, and the capex normalization, cash conversion, tax rate and the Base paths are my estimates. The strongest bull argument is that Copart is being priced as a broken growth stock when it is still compounding pricing power at 5% a year with a net cash balance sheet, and that today's cost pressure is an investment cycle in long-haul delivery and facilities, not a permanent loss of margin. If the margin returned to 36% and revenue grew 8%, the Bull value of $32.50 is a fair outcome. The strongest bear argument is that insurance volume is shifting, costs are rising faster than revenue and capital is being allocated badly.

The choices that lean generous are the 20.5 times multiple, the 6% revenue growth from FY2028 and a stable margin. The ones that lean conservative are the 19.5% tax rate, the capex normalization above FY2026 and excluding interest income from cash flow. I did not tune any of them toward a verdict. Publication gate: PASS_WITH_WARNING, because the multiples are judgments, and the FY2027 capex outlook and the remaining buyback authorization are not available.

Not available or estimated. Unavailable: fiscal 2027 capex guidance, the remaining repurchase authorization, ACV financial statements, a verified peer table. Estimated: normalized capex, cash conversion, the tax rate going forward, dilutive awards, the average buyback price, the history of multiples, the whole forward path.

Final verdict: hold at $27.32

Copart is a great business at a fair price. It has fallen 40% and the price is still 9.6% above my Base value, with the downside to Bear larger than the upside to Bull. I would want either a price near $16.19 or proof that the cost problem is solved before I called it a buy.

VERDICT: HOLD at $27.32; Triangulated Base $24.91; downside to Base 8.8%; required MOS 35%; maximum buy price $16.19. The main thesis breaker is operating margin that keeps falling instead of stabilizing near 34%.

Sources

Primary sources include Copart's fourth quarter fiscal 2026 earnings release and its Form 10-K for the year ended July 31, 2026, the ACV Auctions merger documents filed with the SEC, and the earnings call coverage from fiscal Q4 2026. Financial statement history and the market price come from stockanalysis.com.

The reference market price is the October 9, 2026 close of $27.32. Balance sheet items are as of July 31, 2026 and the share count is the cover page figure of September 25, 2026. The ACV acquisition had not closed. The normalized cash flow, the multiples, the discount rate and the forward path are analytical estimates, not company guidance.