Copart, Inc. (NASDAQ:CPRT) had a great year in 2012. Over the last 12 months the share price has increased 31.6%, much higher than S&P 500’s return of nearly 13.8%. Currently, it is trading at its 52-week high at $31.67 per share. At its 52-week high, its CEO Jayson Adair sold 57,520 shares at the average price of $30.40 per share, cashing out nearly $1.75 million. Is it a bearish sign? Let’s dig deeper.
Copart is considered to be the leading online auction and vehicle marketing service provider company in the US, the UK, and Canada. The salvaged vehicles that the company processes and sells have been obtained from insurance company suppliers. The business revenue includes fees from sales transactions, transportation, and other remarketing services. The majority of its revenue was generated from services, nearly $760 million, accounting for 82% of the total revenue in fiscal 2012. The remaining 18% of sales came from vehicle sales. No customer represented more than 10% of its revenue for the last 3 years.
Cash Cow With a Strong Balance Sheet
In the last 5 years Copart has consistently generated increasing operating cash flow and free cash flow. The operating cash flow has grown from $194 million in 2008 to $230 million in 2012. The free cash flow increased from $81 million to $175 million in the same period. Since 2003, Copart has managed to deliver double-digit returns. Trailing twelve months its ROIC was 17.88%, with the net margin of 19.93%. Those high returns were generated on a debt-free operation. As of October 2012, Copart had nearly $610 million in total stockholders’ equity, $131 million in cash, and little debt.
High Insider Ownership
Since October 2012, insiders, including the CEO, the COO, and the General Counsel, have been selling their positions. As mentioned above, CEO Jayson Adair sold more than 57,500 shares at the beginning of this year. However, he and his related family members still own more than 5.5 million shares, accounting for 4.4% of the total company. The largest insider owner is Willis Johnson, who owned more than 14 million shares, representing 11.1% of the total shares outstanding.
More Superior Performance
Compared to the company’s peers, including AutoZone, Inc. (NYSE:AZO) and CarMax, Inc (NYSE:KMX) , Copart has been the most performing stock over the past year.
Copart has gained 31.6%, whereas AutoZone and CarMax’s share prices have increased 0.36% and 15.63%, respectively. Copart indeed deserves the rally due to its superior performance compared to the other two companies. Its operating margin was 31.1%, whereas the operating margin of CarMax and AutoZone were only 6.6% and 18.2%, respectively. Copart was also the least leveraged among the three, with 0.6x D/E. CarMax’s D/E was 1.8x, while AutoZone had a negative book value.
With the current trading price of $31.67 per share, Copart is worth $3.95 billion in the stock market. The market is valuing Copart at 17.4x forward earnings and 12.34x EV/EBITDA. Copart’s valuation surprisingly is still cheaper than CarMax’s. CarMax is valued at 18.3x forward P/E and more than 17x EV/EBITDA. AutoZone seems to be the cheapest, with 11.12x forward earnings and 8.72x EV/EBITDA.
Looking Forward
Since 2012, Copart has expanded its business overseas. In August, it acquired Ride Safely Middle East Auction in Dubai, UAE. In September, it announced the opening of its new facility in New Hampshire to address growing demand volume in the New England region. In November, the business was expanded to Germany via the acquisition of WOM Wreck Online Marketing Aktiengesellschaft. EPS is estimated to grow to $1.82 next year. Personally, I think in a few years time, Copart would keep expanding its business overseas using its sustainable cash flow from operations. Thus, its EPS would be on the rise.
Foolish Bottom Line
Although the CEO is selling out at its 52-week high, he and his related family members are still holding significant stakes in Copart. The superior margin and return seem to be quite attractive. However, the double digit EV multiples have resisted me from initiating a long position in Copart at the moment.
The article The Best Stock in the Vehicle Remarketing Industry originally appeared on Fool.com and is written by Anh HOANG.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
