Earnings Analysis on Copart Inc. (CPRT)

Copart, Inc. (NASDAQ:CPRT) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visitwww.capitalcube.com.

Copart Inc.’s analysis versus peers uses the following peer-set: CarMax, Inc (NYSE:KMX), AutoNation, Inc. (NYSE:AN), Penske Automotive Group, Inc. (NYSE:PAG), Group 1 Automotive, Inc. (NYSE:GPI), Sonic Automotive Inc (NYSE:SAH) and America’s Car-Mart, Inc. (NASDAQ:CRMT). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Earnings Analysis on Copart Inc(CPRT)

Valuation Drivers

Copart Inc. currently trades at a higher Price/Book ratio (6.2) than its peer median (4.2). CPRT-US achieved a better operating performance than the median of its chosen peers (ROE of 32.6% compared to the peer median ROE of 16.2%) and the market still expects faster growth from it than from those peers (PE of 19.8 compared to peer median of 15.6).

The company’s relatively high profit margins (currently 19.7% vs. peer median of 2.0%) are burdened by asset inefficiency with asset turns of 0.8x compared to the peer median of 2.4x. Overall, this suggests a margin driven operating model relative to its peers. CPRT-US’s net margin is less than (but within one standard deviation of) its five-year average net margin of 20.4%.

Economic Moat

Changes in the company’s annual top line and earnings (6.0% and 9.5% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

CPRT-US’s return on assets is above its peer median both in the current period (16.3% vs. peer median 4.7%) and also over the past five years (14.8% vs. peer median 1.8%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s comparatively healthy gross margin of 47.9% versus peer median of 15.5% suggests that it has a differentiated strategy with pricing advantages. Further, CPRT-US’s bottom-line operating performance is better than peer median (pre-tax margins of 30.1% compared to peer median 3.2%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While CPRT-US’s revenues growth has been around the peer median in recent years (7.5% vs. 7.5% respectively for the past three years), the market gives its shares a higher than peer median PE ratio of 19.8. The market seems to see faster growth ahead.

CPRT-US’s annualized rate of change in capital of 2.9% over the past three years is around the same as its peer median of 2.9%. This investment has generated a better than peer median return on capital of 16.8% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Earnings Quality

CPRT-US has reported relatively strong net income margin for the last twelve months (19.7% vs. peer median of 2.0%). This margin performance combined with relatively high accruals (5.1% vs. peer median of -1.8%) suggests possible conservative accounting and an understatement of its reported net income.

CPRT-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for Copart Inc. (CPRT) Quarterly
Graph of Revenues Trend for Copart Inc. (CPRT) Annual or TTM
Graph of Net Margin Trend for Copart Inc. (CPRT) Quarterly
Graph of Net Margin Trend for Copart Inc. (CPRT) Annual or TTM
Graph of Accruals Trend (% revenues, Quarterly) for Copart Inc. (CPRT) Quarterly
Graph of Accruals Trend (% revenues, Annual or TTM) for Copart Inc. (CPRT) Annual or TTM

Company Profile

Copart, Inc. provides online auctions and vehicle remarketing services in the U.S., Canada and the United Kingdom. The company provides vehicle sellers with a full range of services to process and sell vehicles over the Internet through its Virtual Bidding Second Generation Internet auction-style sales technology, which is refer to as VB2. It sells products principally to licensed vehicle dismantlers, rebuilders, repair licensees and used vehicle dealers & exporters. The company was founded in 1982 and is headquartered in Fairfield, CA.


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This article was originally written by abha.dawesar, and posted on CapitalCube.