Copart Inc (NASDAQ:CPRT) has seen a daily gain of 2.28%, with a 3-month gain of 2.84%. The company's Earnings Per Share (EPS) (EPS) stands at 1.28. But the question remains: Is the stock fairly valued? In this article, we will delve into a comprehensive valuation analysis of Copart (NASDAQ:CPRT). Read on to discover if the stock is overvalued, undervalued, or fairly valued.
Based in Dallas, Copart operates an online salvage vehicle auction with operations in 11 countries across North America, Europe, and the Middle East. The company facilitates over 3.5 million transactions annually using its virtual bidding platform, VB3, to connect vehicle sellers with over 750,000 registered buyers globally. Copart's primary clientele consists of vehicle dismantlers, rebuilders, individuals, and used vehicle retailers, with about 80% of its vehicle volume supplied by auto insurance companies holding vehicles deemed a total loss. The company also offers services like vehicle transportation, storage, title transfer, and salvage value estimation. Copart primarily operates on a consignment basis and collects fees based on the vehicle's final selling price.
As of September 18, 2023, Copart's stock price is $44.88, with a market cap of $43.10 billion. The company's fair value, as estimated by the GF Value, is $45.67, indicating that the stock is fairly valued. Here is the income breakdown of Copart:
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, the stock of Copart (NASDAQ:CPRT) shows every sign of being fairly valued. This means that the long-term return of its stock is likely to be close to the rate of its business growth.
Evaluating Financial Strength
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Copart has a cash-to-debt ratio of 19.63, which is better than 82.48% of 1050 companies in the Business Services industry. The overall financial strength of Copart is 9 out of 10, which indicates that the financial strength of Copart is strong.
This is the debt and cash of Copart over the past years:
Profitability and Growth
Investing in profitable companies poses less risk, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Copart has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.90 billion and Earnings Per Share (EPS) of $1.28. Its operating margin is 38.42%, which ranks better than 96.18% of 1048 companies in the Business Services industry. Overall, GuruFocus ranks the profitability of Copart at 10 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Copart is 20.1%, which ranks better than 84.54% of 983 companies in the Business Services industry. The 3-year average EBITDA growth rate is 20.7%, which ranks better than 67.8% of 854 companies in the Business Services industry.
Comparing ROIC and WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Copart's return on invested capital is 31.45, and its cost of capital is 11.28.
The historical ROIC vs WACC comparison of Copart is shown below:
In summary, the stock of Copart (NASDAQ:CPRT) shows every sign of being fairly valued. The company's financial condition is strong, and its profitability is strong. Its growth ranks better than 67.8% of 854 companies in the Business Services industry. To learn more about Copart stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.