(Download a PDF of this post here)
1Q26 Update.
Copart reported fiscal 1Q26 (calendar 3Q25) and the stock was down -3% in trading the following day.
It was a bad quarter with revenue growth of just +0.7%. Adjusting revenues for the cost of vehicle sales (which makes revenues agnostic between 1P and 3P sales), revenues were still up just 0.5%. Backing out last year’s CAT event though, revenues were +2.9%. This is still down starkly from last quarter’s +8% y/y growth.
International revenue increased by +1.6% y/y or +6% y/y excluding CAT. International Service revenue was +8% y/y, or +14% y/y excluding CAT. This is slightly higher than last quarter’s +13% y/y growth. (Service revenue is a better barometer of how the international business is trending because total revenue includes 1P revenues from purchased vehicles which is a business that is volatile and they want to transition to the consignment segment).
The absent growth was driven by weak global insurance units, which fell -8.4%. Excluding CAT volumes from last year’s period, units were still down -5.6%.
The US was even worse with insurance units declining -9.5% or 7.3% ex-CAT. We will touch into what is driving the volume loss below.
ASPs offset this weak performance, with global insurance ASPs increasing +6.8% and U.S. insurance ASPs up +8.4%. In fact, they achieved an all-time high in ASPs for U.S. insurance carriers.
The strong ASPs were definitely a bright spot for the quarter, which is why CEO Jeff Liaw spent time on the call to elaborate on their superior marketplace liquidity, which drives the prices. He believes this isn’t just a current competitive differentiator, but one that he thinks is growing.
In contrast to peer IAA, Copart has way more global bidders, which are an important source of bidding that supports stronger ASPs. On they call they noted, “In the first quarter of 2026, international buyers have purchased vehicles that are 38% higher in value than comparable U.S. buyers by comparison.” Global buyers tend to gravitate towards higher value cars and without that global buying base it would be hard for IAA to handle higher end vehicle volume to the same degree.
Jeff Liaw continued that he thought these were long-term trends: “We believe that these are long term durable trends as population growth and mobility, demand growth outside the United States, outside the U.K., Canada and so forth continues to outpace what we are experiencing firsthand in our origin markets.” In addition, he noted that unique bidders per auction have steadily grown since 2022 to all-time highs.
Moving down the P&L, gross profits grew 5% (or 4% ex-CAT) and operating income grew 5% as they had lower CAT expenses and had tight expense control on Yard Operations.
EPS for the quarter ended up +11% to $0.41 per share.
Business Commentary.
The big debate around Copart is what the main driver of their volume loss is. While management has admitted they lost some market share, Copart has a rationale that would lead an investor to believe it will be cyclical and short-lived. Bears in contrast believe this shift could be a permanent headwind from a change in the competitive environment. Furthermore, fears are percolating that accident avoidant technology is finally showing up in the salvage volume numbers, which will be a lasting secular headwind. There are four key things an investor should know.
The first is that Copart has indeed lost some market share. However, they did not lose any clients to Ritchie Bros. Rather, the insurance companies Ritchie Bros services, namely Progressive, have been taking market share from other insurers, which has the byproduct of fewer salvage vehicles being directed to Copart.
It is a bit of an open question why Copart hasn’t won any Progressive volumes (it is possible that Ritchie Bros is much lower on pricing and Copart doesn’t want to make that concession for fear they will have to do that with other carriers, but that is just conjecture). Nevertheless, it seems unlikely that the rest of the insurance industry is just going to continue to cede market share to them. Yes, Progressive may have some advantages with the way they price risk and use of telematics, but it is hard to think in such a traditionally competitive industry that one player is just going to continue to win with no competitive response.
Over the past few years, insurers were really whipsawed by Covid reducing driving and in turn them offering rebates and lower rates for inflation and tariffs to rip up increasing the cost to repair vehicles. This weighed on their profitability and in turn they aggressively raised rates. Now that combined ratios have come down (calculated as losses over premiums—when they are below 100% that means they have a positive margin on their insurance business), Copart is suggesting that insurance carriers will be a bit more aggressive on pricing.
Beyond this factor, to explain the market share loss and negative volume growth, the story Copart paints is threefold: 1) Total loss frequency increased 80bps y/y to 22.6%, 2) Fast tracked paid claims frequency for collision coverage (according to ISS) was down 7.5%, 3) Earned car years were down 4.1%. Vehicles in operation increased 1.4% though.
Total loss frequency is the % of cars that are totaled after being in an accident. This is increasing and has been since the 1980s. As cars have become more complex, they have gotten harder to repair and so when they do get hit, it is more expensive to repair them. The more expensive it is to repair a car, the more likely it is to be totaled.
Accident avoidant technology will help reduce frequency of accidents, but when there is an accident, there is a higher chance that the car is totaled. This is because of all of the technology like sensors and mini computers that are easy to break and expensive to fix.
Fast tracked paid claims frequency for collision coverage are the simpler, low-severity claims. This dropping in conjunction with vehicles in operation, has three potential explanations. The first is that people are driving less. However, vehicles in operation increased and miles driven hasn’t decreased in decades outside of Covid. This means there are fewer claims either because 1) fewer claims are being filed because of high deductibles and to avoid having an insurance premium increase, or 2) accident avoidant technology finally became good enough this quarter to show a large jump in fast tracked paid claim frequency.
Above Jeff Liaw notes that its very unlikely you see a fundamental change in vehicle mix in a years’ time that could drive this change. Nevertheless, we can’t say it’s impossible that this isn’t the result of accident avoidant technology, it is highly unlikely that it would jump to this extent in a single quarter. Last quarter Jeff Liaw noted “accident rates are declining but that they’re doing so at rates consistent with long-standing historical trend”.
The more likely explanation of the claims frequency dropping (in our opinion) is that people are just filing less claims because they have higher deductibles, are scared reporting a claim will increase premiums (which it often does), or that they are going without insurance.
To this last point, Earned Car Years were down 4.1%. This metric is the portion of a policy that is “earned” by the insurer in a given year. So, if you pay a $2,000 insurance premium upfront for the year, after 6 months only half of it is earned. This figure being down means that more people are cancelling their insurance and going without any. To this point Jeff had this to say:
All of this points to two reasons for the market share loss are likely cyclical and not secular. Given it is illegal to drive without insurance, it really has to be the result of a very tough economic situation for someone to cancel it. As Copart notes, no or lowered insurance coverage does tend to happen cyclically in weak economic backdrops. This factor accounts for a good portion of the volume drop with the rest being attributed to Progressive gaining market share.
While there is some irony in the fact that Copart is regularly lauded as the definition of a strong moat company, but it only took 2 quarters of weak performance to shake investors faith. Ultimately though, an investor will have to decide for themselves whether they buy Copart’s explanation of the volume loss or if this really is a new paradigm shift.
Valuation.
At $40 a share and TTM EPS of $1.60, Copart trades at 25x earnings. However, they have $5.2bn of cash, which if you back out and eliminate the associated interest income, that drops to 23.5x. This compared to an average 10 year historical forward multiple of 29x. They did not announce any plans for share buybacks, but said they could announce a buyback in the future or a tender offer if they felt it was an appropriate ROI.
To get a more precise idea of what needs to happen in order to get a return though, we turn to our reverse DCF. We vary revenue growth from 3% to 12% just so an investor can get a sense of returns in a wide variety of circumstances. Keep in mind though, that revenues grew at a 15% CAGR for the past 10 years and a 16% CAGR over the past 5, so the high end of our range could prove to be conservative.
Copart already has high margins at 37%, but we wanted to show a scenario with a little bit of margin pressure and another where they can expand margins a bit as growth capex drops overtime. (This is not a base case assumption, but just to show what mature margins could look like when they are not growing quite as much).
Below we see the outputs of the reverse DCF at the current enterprise value. To get a return equivalent to what the market has historically, an investor would need to assume high single digit revenue for the next 5 years that then fades. While it may seem like a high hurdle relative to this quarter’s 3% growth, remember that they have handily beat this for the past decade. There also was one instance in 2015 where revenues shrunk -1% and then returned to growth thereafter. Of course, it is on each investor to figure out what they are comfortable assuming.
Call Notes.
Noninsurance Volume
- “Noninsurance units are contributing a greater percentage of our overall unit volumes, we naturally have a greater proportion of units, which have substantially shorter cycle times being processed through our facilities. During the quarter, in the U.S., our cycle times have decreased by 9% from the prior year period, and these improvements — while these improvements in cycle time are decreasing inventory levels, they are increasing the overall processing capacity of our existing facilities. “
Volume
- “Our global insurance units for the first quarter 2026 declined 8.4% or a 5.6% decline excluding catastrophic volumes from a year ago”
- “Our US insurance units declined 9.5% for the same period and 7.3% excluding catastrophic activity as well.”
- “The underlying drivers of these trends are consistent with what we have discussed in prior quarters. It’s a combination of market share evolution among insurance carriers themselves. Soft claims counts as a result of consumer retrenchment in their auto insurance purchasing behavior offset by rising total loss frequency. On that last point, total loss frequency has continued its long term upward trend consistent with nearly the entirety of the history of our company and our industry in the U.S. For the calendar year 2025 through September, total loss frequency was 22.6%, an increase of 80 basis points or so year over year according to CCC.”
ASPs
- “We are achieving all time high average selling prices for our U.S. insurance carriers and in fact for the quarter our global insurance ASPs increased 6.8%, our U.S. insurance ASPs increased 8.4%”
Gross Margin
- “Gross profit per fee unit increased 12.3% and purchase unit gross profit decreased 3% to $22 million from the prior year period. Gross margin improved 184 basis points to 46.5% reflecting the non recurrence of one time expenses related to our CAT response.”
Purple Wave
- “Purple Wave’s GTV growth of over 10% over the last 12 months continues to outperform the broader industry and reflects strong buyer engagement in our expansion markets, growth in our enterprise accounts and sustained demand in the heavy equipment category.”
Stock Buyback
- “I think generally you can expect that Copart will continue to focus on deploying capital when we see areas that we believe will create meaningful long term value for the business and for our shareholders. We’ll continue to do that. That’s our responsibility from a management perspective and our board. Today as we think about opportunities to reinvest back into the business, our first priority remains being to drive as much expansion as possible for the business through investments, whether it’s in CapEx or M and A. We’ll continue to evaluate opportunities to do that and drive long term growth of the business. To your point, to the extent that we have a view that long term from a valuation perspective, there’s an opportunity to create meaningful value. We’ve historically used the share repurchase program through a couple of different means, open market purchases, tenders, et cetera. That would be our lever to return capital to shareholders. Nothing has changed on that front.”
*At the time of this writing, one or more contributors to this report has a position in CPRT. Furthermore, accounts one or more contributors advise on may also have a position in CPRT. This may change without notice.