Do you know the narrative that boring companies make the best investments? Copart is one of the best examples of that. The title says “The 100-Bagger Junkyard.”

Actually, it’s almost a 400-bagger since its IPO.

At its core, Copart runs a global marketplace for totaled vehicles, connecting insurance companies that want to get rid of them with over 350,000 buyers across 160 countries who still see value in the scrap. It’s an industry with few competitors and high barriers to entry.

Copart is also a culture-driven company. Its founder, Willis Johnson, isn’t your typical Wall Street CEO, and his philosophy and approach remind me a lot of Warren Buffett's.

But the stock has seen one of its most severe declines ever this year, going from an all-time high of over $60 to the low $40s. There are some short-term reasons for that, but the larger one is how AVs could change the salvage business. That’s one of the questions we’ll answer today.

Let’s dive in!

— Daniel

Copart: Turning Junk into Gold

Copart’s Beginnings: Turning into a Junkyard Giant

Copart’s story starts in 1982 with a single salvage yard in Vallejo, California, and a founder who didn’t exactly fit the Wall Street mold. Willis Johnson was a Vietnam veteran with no formal education, just a sharp business sense and a relentless focus on efficiency.

Johnson bought wrecked cars, auctioned them off for parts, and reinvested every penny into expanding his yard network. For the first decade, Copart was a local operation, expanding only in its core area. As Johnson mentioned in his book, he was the last person to ever think he would go public with his junkyard business. But by 1994, what started as one small junkyard had become a growing network of yards ready to make the next step.

The IPO gave Johnson the capital to scale the business nationwide. He acquired North Texas Salvage Pool, the country’s largest salvage seller, and a year later, NER Auction Group, which doubled Copart’s footprint overnight. What had once been a regional scrapyard was now one of the biggest players in the U.S. salvage industry.

The Online Leap and Copart’s Flywheel

By the mid-1990s, Copart had already proven it could roll up the fragmented salvage yard industry. But what truly changed the company’s trajectory was a bet that, at the time, looked almost ridiculous — moving car auctions online.

In 1996, just two years after its IPO, Copart launched its first website and later introduced internet bidding through its Centralized Auction System (CAS). Keep in mind, this was the era of dial-up modems and Netscape browsers. Even eBay was barely three years old, and the idea of bidding on wrecked cars online sounded a bit more outlandish than bidding on Pokémon cards.

But it was a turning point for Copart. The move digitized what had always been a local, physical process and turned it into a scalable, global marketplace. No more showing up at a dusty yard in person. With a few clicks, anyone with an internet connection could bid on a car halfway across the country.

This decision created a flywheel effect that enabled Copart to become the number one salvage car auctioneer. Surprisingly, despite its obvious success, competitors took many years before they tried to follow in Copart’s footsteps.

More bidders meant that there was more demand for Copart’s cars than for any other car auctioneer. More demand meant higher prices, which, in turn, attracted more insurance companies to sell through Copart. And more insurance companies selling through Copart meant more vehicles on the platform, which drew in even more buyers.

It’s a flywheel effect that wonderfully explains the power of the two-sided marketplace Copart offers, where both buyers and sellers get the best value proposition.

And the decoupling from selling on local junkyards somewhere in the U.S. transformed Copart from a national junkyard operator into a global network of over 250 facilities and 350,000 registered buyers across 160 countries. Each year, more than 3 million vehicles flow through its online auctions.

Because Copart was the first, it built both the technology and trust before competitors realized what was happening. Its Virtual Bidding (VB3) platform, which launched in the early 2000s, provided buyers with full transparency: real-time bids, 360-degree car images, and automated proxy bidding. It worked so well that people quickly felt comfortable buying cars they had never seen in person before.

Copart is a perfect example of how digital leverage can transform a “boring” business into a compounding machine. Alright, let’s take a closer look at the business model.

The Business Model: How Copart Makes Money

Most cars offered on Copart’s platform come from insurance companies. Why is that? Well, when an insurance company decides that repairing a vehicle costs more than it is worth, that car typically ends up at one of Copart’s 250+ yards. From there, Copart handles the entire process — towing, photographing, listing, and auctioning — while collecting a set of fees from both sides of the transaction.

The beauty of the model is that Copart rarely takes ownership of the vehicles it sells. Instead, it acts as a service provider, matching supply and demand while avoiding the capital intensity that comes with holding inventory. Roughly 80–85% of Copart’s revenue comes from this service model, which includes auction fees, storage, transportation, and processing.

The other 15–20% of revenue comes from vehicle sales, where Copart temporarily owns the car. This happens mostly in international markets like the U.K. or Germany, where the company is still convincing insurers to switch to its lighter, service-based model. But it’s also a model Copart switches to in the U.S. when used car prices are very high. When that happens, Copart sees less volume from insurance companies because repairs are often cheaper than a total loss.

Each car sold on Copart’s platform generates a stack of small, but very steady fees:

• Auction fees (usually charged to both buyer and seller).

• Listing, storage, and transportation fees for moving and storing cars.

• Title processing fees to handle the paperwork.

• And even membership fees, since every bidder must pay to participate.

There are currently hundreds of thousands of paying members around the world, each choosing between two membership tiers. The basic plan costs $100 per year, while the premium plan is $250, allowing for higher bidding limits. It’s not a big revenue line; deferred membership revenue sits around $25–30 million, but it adds another sticky layer to the business.

While Copart charges fees to both the buyer and seller sides, the majority of auction fees, usually around 80%, are paid by the buyer side. There are not many large insurance firms that can drive volume for Copart, so their negotiating leverage is much greater than that of a highly fragmented buyer base. Buyer fees usually range from 7% to 13% of the sale price, depending on volume and payment method.

On the seller side, Copart often operates under a Percentage Incentive Program (PIP), in which fees are tied to the final sale price. The higher the sale price, the more Copart earns and the more money the insurer recovers.

It’s a low-risk, high-margin business model that scales beautifully. Cars pass through Copart’s system, and it collects a fee every single time. And because it handles millions of vehicles a year, even tiny per-unit fees add up to billions in recurring, capital-light revenue.

But it’s a rule of capitalism that whenever there’s a lot of money to be made, competitors will emerge and fight for a share of the market. In Copart’s case, though, there are high barriers to entry.

The Competitive Landscape and Copart’s Moat

On paper, selling wrecked cars doesn’t sound like a business with high barriers to entry. All you need, it seems, is a patch of land, a few tow trucks, and a website. But the deeper you look, the clearer it becomes why Copart’s moat is almost impossible to replicate.

The U.S. salvage auction market is effectively a duopoly. Copart and its main competitor, Insurance Auto Auctions (IAA), control roughly 80% of the market, with the remaining share split among hundreds of small, local operators. Even within that duopoly, though, Copart has steadily pulled ahead. There are two main reasons for that.

Arguably, the biggest is land ownership. IAA leases its yards. Copart owns them. They started buying land from the beginning, and every single yard that they added to their operations, they bought. And that difference has compounded into a massive long-term advantage.

Today, Copart owns over 250 sites across the U.S. and abroad. Many of them were purchased decades ago when land on the edges of major cities was still cheap. Those same areas are now heavily developed, and new permits for salvage yards are almost impossible to obtain. After all, most people don’t mind a new coffee shop opening next door, but no one wants a junkyard behind their house.

That scarcity of permits acts as a regulatory moat. Even if a well-funded competitor wanted to replicate Copart’s footprint, it wouldn’t be possible. Owning the land also gives Copart control and stability. The company doesn’t have to worry about rent increases, lease expirations, or being pushed off valuable properties. As housing becomes scarcer in urban areas, the likelihood increases that expiring lease contracts will not be renewed if there are more profitable real estate projects.

IAA, by contrast, followed the Wall Street playbook — lease fast, expand fast, and worry about long-term costs later. This approach did not only result in a significantly worse asset base (most of Copart’s yards are still on the books at the old purchase prices, which massively undervalues them), but it also cost a lot of money.

While Copart sits on nearly $5 billion in cash and carries virtually no long-term debt, IAA, before being acquired by RB Global, had roughly $3 billion in net debt.

Copart’s early move to selling online has been another major advantage. Despite its early success, IAA didn’t build its own platform right away. In fact, it only started selling in online auctions a decade later. At that time, Copart’s marketplace was already too far ahead. Hundreds of thousands of buyers whose liquidity made Copart the best platform for buying and selling salvaged and used cars.

Management, Culture, and Compensation: The Berkshire of Junkyards

I’ll keep this chapter rather short, but I still want to point out the many advantages the right culture brings. Copart’s long-term thinking is evident in many ways, not only in its foresight in buying all the land. I believe the ultimate test of a company's culture comes when the founder resigns and a new CEO takes over.

When Johnson stepped back from day-to-day operations in 2010, his longtime protégé Jay Adair took over as CEO. The two had worked side by side for decades, and it quickly became clear that Adair shared the same values. Under his leadership, Copart’s market cap grew from roughly $2 billion to over $30 billion, all while staying debt-free and avoiding Wall Street’s short-term temptations.

And Copart has even completed the next handover. In 2022, Jeffrey Liaw became the third CEO in Copart’s history, and remarkably, nothing changed. The same cost discipline, land-first expansion strategy, and refusal to chase growth for growth’s sake continued.

That discipline also shows up in how management pays itself. Adair famously takes a $1 salary and receives no cash bonuses. So all his salary is based on stock grants. Willis Johnson, now Executive Chairman, earns the same cash retainer as any outside director, about $57,500 per year, plus a modest stock option grant of roughly $250,000.

Even those options are tied to strict performance hurdles: the stock must trade at 125% or more of the grant price for 20 consecutive trading days before any options can be exercised. It’s a pay structure that only rewards real, long-term shareholder value creation.

Current CEO Jeff Liaw earns a base salary of about $900,000, which is still conservative for a company approaching $50 billion in market cap. His incentive plan follows the same structure — long-term options that only vest if the stock compounds.

Combined insider ownership exceeds 8%, with Johnson and Adair alone holding stakes worth over $2.8 billion and $1.2 billion, respectively.

And that mindset extends to capital allocation. Copart doesn’t pay a dividend, and it only repurchases shares when management believes the stock is undervalued. The last major buybacks happened in 2016 and 2019, both when the stock traded at P/Es in the high teens to low 20s.

In recent years, with the multiple hovering around 30–40x, management has stayed patient, preferring to invest in land rather than chase buybacks at inflated prices. And when you consistently earn returns on invested capital above 25%-30%, buying more land is often a better use of cash than shrinking the share count.

Up until now, everything about this story sounds very compelling, so you might ask why the stock has been down so much this year. Part of the reason might be that valuations haven’t exactly been low. But there are also some qualitative threats.

Risks – AVs, Climate, and the Total Loss Frequency

Copart does a good job of managing what it can control. However, some external factors are beyond its influence. If you simplify it to a single key factor, Copart’s success relies on the number of vehicles that are totaled each year. When that number increases, the business thrives. When it decreases, Copart’s volumes shrink.

That variable is also called the total loss frequency, the percentage of accidents in which insurers decide a vehicle isn’t worth repairing. That number fluctuates based on two factors: used car prices and accident rates.

I explained previously that when used car prices are high, insurers tend to repair cars rather than declare them a total loss, which means fewer vehicles flow into Copart’s yards. That dynamic hurt volumes during the 2021–2022 period, when used car prices soared to record highs.

More recently, as prices have somewhat normalized, Copart’s total-loss volumes have rebounded.

Fortunately, Copart can counter periods of high used-car prices by increasing its share of Vehicle Sales, as it did in 2021 and 2022. That’s when Copart takes ownership of used cars and sells them directly on its platform.

Another risk outside of its control is the weather. Catastrophic events like hurricanes, floods, and hailstorms can push thousands of vehicles into Copart’s system within days. These “CAT events” are both a blessing and a curse. They create sudden spikes in volume and fees, but they also bring massive logistical challenges. Copart has to move, store, and process those cars instantly, often leasing temporary land and paying overtime to keep operations running.

As climate change increases the frequency and severity of these events, Copart’s exposure to this volatility grows. Yet, paradoxically, so does its importance. After Hurricane Ian in 2022, Copart mobilized emergency leases and processed tens of thousands of damaged vehicles across Florida, proving its role as not just an auction platform but a key recovery partner for insurers, cities, and states.

Copart’s willingness to help during such events has actually been an important factor in why it took massive market share from IAA over the last decade. IAA has often pulled back in those situations, refusing to get involved when the economics looked too risky. Copart even created an initiative called “20/20/20,” essentially a commitment to always be ready when large-scale catastrophes hit, so insurers could count on Copart as a reliable partner.

Since IAA has been acquired by RB Global, though, they have changed their stance on this to some extent. Also, there’s generally no incentive for insurers to turn this market into a monopoly. If Copart controlled the entire market, insurers would lose negotiating power and risk being squeezed on fees. So, an additional risk is that Copart might lose some volume in the future, making the market more balanced again.

Before we talk about the most prominent risk — AVs — let’s quickly discuss a short-term headwind for Copart. A couple of weeks ago, I covered Berkshire Hathaway. When discussing the insurance business, I showed a graph that illustrated its margins. Geico, for example, had fantastic margins in the last years. The reason for that has been several years of steep premium hikes. Not only at Geico, but by the entire industry.

The result has been an increase in the rates of uninsured and underinsured drivers. Since most of Copart’s volume comes from insurance companies, that’s not good news. However, management argues that this is a short-term tendency that will revert.

The longer-term risks, though, are structural. There are two major questions hanging over Copart’s future. First, what happens if people own fewer cars because of ride-sharing and changing mobility patterns? And second, what happens when autonomous vehicles make driving dramatically safer?

The first risk, fewer cars on the road, feels a bit overblown to me. Despite better public transport, ride-hailing, and a decade of innovation in mobility, total miles driven in the U.S. have quadrupled since 1960. People still prefer the independence of owning a car, and global vehicle fleets continue to grow.

The risk posed by autonomous vehicles is more real, but progress is very slow. Even if fully autonomous cars start to comprise the majority of new sales (which is unlikely to happen in even the next 10 years), the average car stays on the road for about 15 years. That means it will take decades for the current fleet to fully turn over.

And, somewhat unintuitive, more technology could also mean more total losses. Modern cars are filled with cameras, radar, and sensors, and repairing them is expensive. A minor collision that once cost $1,500 to fix can now cost $10,000 if a bumper sensor or LiDAR array is damaged. So while fewer crashes might occur, the cost per crash is likely to rise, keeping total-loss volumes resilient.

And we shouldn’t focus only on the U.S. and Europe. Even if we have many AVs on our streets in 15 years, that won’t be the case in most countries around the world. So, Copart could spend yet another decade, at least, selling cars that leave American and European roads for destinations elsewhere on the globe.

All in all, I don’t see Copart’s business model to be under serious threat anytime soon. The same trends that could hurt volume in one area often create opportunities in another. As vehicles grow smarter, pricier, and more fragile, Copart’s role in managing their second life becomes even more essential.

Growth Drivers: Expanding Beyond Insurance Salvage

In the past, Copart has primarily grown by expanding its network of yards, both nationally and internationally. And this remains the first growth driver.

In the U.S., Copart already controls roughly half of the salvage auction market, which is valued at around $10 billion annually. That doesn’t leave much room for domestic share gains. Abroad, however, the opportunity is wide open.

Today, Copart operates in 11 countries, including major markets such as the U.K., Germany, Spain, and Brazil, as well as smaller markets such as Finland. Together, these international operations account for nearly 20% of total revenue, up from just 10% a decade ago (excl. the U.K., which has been a big market for Copart for many years now).

Copart has a clear model for international expansion. It starts similarly to the U.S. business by buying land in strategic locations to ensure long-term control. But then it starts exploring the market with its Vehicle Sales model, where Copart buys used cars outright and sells them through its auction process. It’s the same model they switch to in the States when used-car prices are high.

Copart does that because the service model is not yet established in countries outside the U.S. By taking ownership of cars and selling them through its network, Copart proves to insurers that its model guarantees the best prices and the highest frequency of sales. Once insurers see the high recovery rates, Copart transitions to the fee-based service model.

That transition matters because the service model is far more profitable. In recent years, as Germany and Spain phased out the purchase approach, Copart’s international gross margins rose by over 1,000 basis points, from roughly 25% to 35%. Each country that crosses that threshold permanently expands Copart’s earnings power.

The second growth driver is customer diversification. Historically, around 80% of Copart’s vehicles came from insurance companies. That concentration works well in stable markets, but can magnify short-term headwinds when insurers lower rates, as is happening right now, or when total-loss thresholds are raised, as was the case in 2021 and 2022. To balance this, Copart has steadily expanded into non-insurance channels: rental fleets, banks, auto dealers, and even individuals.

The company’s BluCar division manages this growing segment, handling “whole cars” rather than total losses. When rental companies downsize fleets or when banks repossess vehicles, BluCar auctions them through Copart’s same digital platform. Sellers benefit from global liquidity, while Copart earns the same fee stack, without relying on insurer volumes.

Beyond cars, Copart is also building new verticals. In 2017, it acquired National Powersport Auctions (NPA), expanding into motorcycles and powersport vehicles. More recently, Copart took an 80% stake in Purple Wave, extending its auction technology to construction, agricultural, and fleet equipment categories far less sensitive to autonomous driving or changing mobility habits.

Financials and Valuation

Over the last decade, Copart has delivered a 15% compound annual growth rate (CAGR) in revenue and a 21% CAGR in earnings per share. Top-line growth has even accelerated slightly in the last five years, with revenue up roughly 16% CAGR.

EPS has grown slightly below historical levels, but that’s also due to a lack of meaningful buybacks in recent years, which are likely only a matter of time.

The consistency is even more impressive when you consider how cyclical the insurance and used-car markets can be. When you zoom out, Copart’s results look less like a salvage company and more like a software platform with recurring revenues.

Margins tell the same story. The company’s gross margin hovers around 45%, and its operating margin sits near 36%, which are extraordinary levels for a business that still relies on physical assets like trucks and yards.

Even if those margins are slightly inflated due to accounting (Copart capitalizes its land purchases rather than expensing them), the free cash flow margin remains exceptional at over 25%.

That strength translates directly into returns on invested capital (ROIC), which consistently sit in the mid- to high-20% range.

Occasionally, ROIC dips in the short term. When Copart buys new yards, capex spikes, and returns temporarily compress. Once those new sites ramp up to full capacity, operating profits outpace invested capital, and ROIC trends right back up again.

The balance sheet, as you'd expect from a company with Copart's culture and discipline, is very strong. Copart has around $5 billion in cash and equivalents and almost no long-term debt. This provides plenty of resources for buybacks or M&A.

Long story short, I’m a huge fan of Copart. I like the business, the moat, and the culture. And yet, for all that quality, we have to ask ourselves: how much should we pay for it?

Since recording the podcast, Copart has declined another 5%, trading at a P/E in the high 20s and a P/FCF of 35. Compared to Copart’s historical valuation levels, this is on the cheaper end. However, it’s far from being a bargain yet.

To estimate Copart’s intrinsic value, it helps to think of the business as two engines running at different speeds. The high-margin, fee-based service model makes up about 80–85% of revenue, and the lower-margin vehicle sales business makes up the rest.

In my valuation model, I assume service revenue continues to grow at around 11% annually, driven by the three key tailwinds discussed in the growth section. The biggest impact over the next couple of years will be that markets like Germany, Spain, and Brazil transition from a vehicle sales model to a service model, with revenue per unit and margins rising.

For the vehicle sales segment, I expect low growth of just 1% per year. This reflects the gradual shift away from car ownership in mature markets and Copart’s own strategy to phase out direct vehicle purchases in favor of its capital-light model. If used car prices see another major uptick as in 2021 and 2022, this segment could grow significantly faster, as it has at that time, but these times are followed by years of no growth or negative growth, balancing it out over the long run.

Together, that puts consolidated revenue growth at around 9–10% per year over the next five years.

On the margin side, operating leverage and international mix improvements should help Copart lift operating margins from roughly 36% today to about 41% by 2029. As new yards reach capacity and more international operations flip to the service model, incremental margins should expand further beyond that horizon.

I have modeled modest share count growth of 0.5% per year. That’s in line with the growth rate of recent years.

However, Copart is highly aware of not diluting shareholders. Their policy is not to allocate a specific amount of capital to share repurchases each year, but at some point, when the stock is attractively valued, they will buy back shares aggressively and reduce the share count. I view this as an upside option, but since we don’t know when these buybacks will occur, I can’t really include them in my model.

Applying an 8% discount rate, consistent with Copart’s low-risk balance sheet and highly recurring cash flows, and a terminal multiple of roughly 26x earnings, the implied fair value falls in the low $40s per share. Adding a standard 10% margin of safety, a good entry range for long-term investors is in the high $30s.

I would really like to own Copart, but I suggested to Shawn that we wait until we can get a price that makes the risk-reward slightly more favorable.

For more on Copart, you can listen to our podcast here.

More updates on our Intrinsic Value Portfolio below 👇

Weekly Update: The Intrinsic Value Portfolio

Notes

• We have decided to add to our Adobe position at a price of $332 per share. The stock has declined almost 10% in the past month, while the thesis remains unchanged. Adobe continues to grow at double-digit rates and is trading at a high single-digit buyback yield.

   

• There are no signs of AI disrupting its highly recurring revenue business, and it continues to lead its market. Adobe previously represented about 5% of our portfolio, and considering our excess cash position and the higher expected return at current prices, we decided to increase it to roughly 7%. It now stands as our fourth-largest holding, behind only Alphabet, Airbnb, and Berkshire Hathaway.

Quote of the Day

"Watch your pennies and the dollars will take care of themselves.”

— Willis J. Johnson

What Else We’re Into

📺 WATCH: How Peter Lynch Became The Greatest Fund Manager Of All Time

🎧 LISTEN: Clay Finck Deep Dives into Tesla and Elon Musk

📖 READ: A Transcript of Howard Marks reflecting on 35 years of writing Memos

You can also read our archive of past Intrinsic Value breakdowns, in case you’ve missed any, here — we’ve covered companies ranging from Alphabet to Airbnb, AutoZone, Nintendo, John Deere, Coupang, and more!

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