CoPart - a company that figured out how to thrive in a cyclical industry (secret: insurance clients)

Click! You are scrolling a car-auction website as an insurance representative. Your goal is to sell that wrecked car your team had to take off the road last week, so that the insurance company can at least make back some of its losses. You are looking at some other wrecks. You open the auction, and within minutes, the car is sold. You didn’t even need to set the price - CoPart’s algorithm set the final price, and that’s what you get. That’s it - you think - now all I have to do is wait for CoPart’s team to arrive and pick up my car. You like it. In the B2B world, it’s crucial to make it as simple as possible, so that your client gets to focus on their core business. You sip some coffee with a sense of accomplishment. You hear a truck on the driveway. Seems I have to go - you mutter.

All business owners of insurance companies must have been in a similar situation before - that’s why today I will be taking a deep dive into CoPart - the company behind the sales of millions of destroyed cars, with my friend Ozeco, to check whether it could be a good long-term investment. Let’s go! :)

First of all, let’s look at what this company does - it’s not as simple as “only” providing a marketplace. It’s still a huge feat, but many of the services they offer are what make them a viable winner.

First of all, the process of onboarding a person to join their auction platform is pretty straightforward:

Simple, right?

They, of course, offer different customer tiers for different needs:

• Guest Membership (FREE): Best for people who are new to Copart and simply want to browse inventory online and create a Watchlist to keep an eye on specific vehicles of interest.

• Basic Membership ($99 annually): Best for individual buyers who may only bid on and buy a few vehicles each year. This plan comes with limited Buying Power, which can be increased with additional deposits. Your deposit on file with Copart needs to be 10% of the maximum amount you wish to bid on a vehicle. Example: A $3,500 bid would require a deposit of $350. - This type of deal can be very profitable for companies if used smartly.

• Premier Membership ($249 annually + $400 one-time fully refundable deposit): Best for individuals and business buyers who plan to bid on and buy several vehicles each year. This plan comes with substantial Buying Power. - This type of tier is for more demanding traders.

For people who want to buy damaged vehicles but don’t have the licenses to do it, CoPart offers them an opportunity to partner with a broker. That way, people who normally couldn’t, can now buy a destroyed car!

Companies don’t want to deal with unnecessary administrative burden, and transferring ownership from the previous owner to another can be complex, especially with damaged vehicles. CoPart makes it easy to do - they handle all of that.

Transportation options are also something that Copart offers. When you win some kind of international auction and you’re based in Warsaw, Poland, and the seller is on the other end of the world, eg. New York, USA, transport can be a nightmare. CoPart handles that, of course, for a fee.

If a buyer cannot pick up a vehicle immediately after purchase, Copart will store it for a daily fee. Remember: Copart operates over 200 physical locations in 11 countries where it securely stores vehicles before, during, and after the auction process.

Financing options are also a big plus from CoPart, meaning they connect some local lenders to interested customers, and give them the ability to buy cars for credit.

Some monopolistic traits I noticed:

• 200 physical locations - a hard-to-copy barrier to entry. Unless you own a large amount of capital, those sites aren’t easy to just place outright. They are giant.

  • It is capital-light on inventory, which insulates it from market volatility and is the primary reason for its high and stable profit margins.

• Regulations - a damaged car can pose a danger to people and/or property. Proper qualifications for handling such objects are essential. COPart has this, and this can act as a barrier to entry for some other companies, which don’t have the necessary legal team behind them.

Here we go over the negatives of their business:

• It is capital-intensive on infrastructure, which creates immense barriers to entry and protects it from competition, but also can weigh on the shareholders’ returns if they leverage too much.

• Its valuation can be a bit high, meaning that if investors see any sign of weakness, it triggers an immediate selloff, which could impact the short-term price.

• Demand for cars can be cyclical - Germany, for example, one of its key markets, is currently experiencing an economic headwind, which could be contributing to COPart’s revenue slowdown.

• Other companies, such as the IAA, are emerging that might be offering cheaper options to do the same thing, or even have more features.

Financial health

Here is what my tool can do, and it can be yours here:

We can see them having a really well-prepared financial position. Not too much debt, and liabilities (likely some cars in their inventory).

Their margins are also at a good percentage:

Balanced market position

Here is what my tool can do, and it can be yours here:

In terms of their market share position, it’s not dominant, but they are one of the big three, you can say:

But that’s not all, on our MonopolisticScore, they scored 5.8 out of 10, which is impressive, given they are a very boring company, you can say, not making the latest AI chatbot:

You can't tinker around with the companies right here, for free, no registration: MonopolisticScore

We don’t want to overpay, and for that, we need to do a DCF valuation, with a 10-year look into the future.

Here is what my tool can do, and it can be yours here:

First, based on the revenue growth simplywall.st is implying: 9.8% per annum, I created this analysis:

Now we also have other ways to analyse a business, namely a varied cash flow analysis, and I have created a 10-year view of what might happen to their business:

CoPart’s unique aucytion software is the part of the bsuiensss that is highly scalable, but the industry that they operate in is their main weakness - cars, and while I understand that the deamnbd from insurance companies is likely going to be evergreen - people are always going to have destroyed cars that need selling - for me, it’s not a company that I would like to put my money into, the riks of unsold inventory is too large for me, as it’s well, cars! So while it is a good company, and way more resilient than those car manufacturers, due to its B2B customers, it’s not for me, but rather, for a person looking to capitalise on a safer industry than the car manufacturer industry.

This isn’t financial advice.

Stay focused on the fundamentals.

I made a meme on CoPart to show this:

Here’s a financial dashboard view of CoPart I made for paid subscribers:

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