Copart Inc - Ultrathink: A Philosophical Deep-Dive

"In the long run, it's hard for a stock to earn much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for those 40 years, you're not going to make much different than a 6% return - even if you originally buy it at a huge discount." — Charlie Munger

The Core Question: What Makes Copart Special?

Strip away the financial statements, the earnings calls, the analyst debates. What is Copart at its essence?

Copart is a toll road. Not metaphorically, but functionally. When a car is totaled in America, it must flow through one of two pipes: Copart or IAA. There is no third option at scale. The insurance company has no choice but to use one of these two platforms to dispose of the vehicle. Every totaled car pays a toll.

But Copart is more than a toll road. It is a toll road that owns the only land where toll roads can be built. This is the insight that separates Copart from ordinary duopolies. In most duopolies, a well-capitalized competitor could theoretically replicate the infrastructure. In Copart's case, replication is virtually impossible.

Consider what a new entrant would need:

• 200+ locations near population centers
• 19,000 acres of land zoned for salvage operations
• 20+ years of relationship building with insurance carriers
• 800,000+ registered global buyers
• Billions in capital
• Local zoning board approvals that increasingly reject new salvage yards

The last point is crucial. NIMBYism has created an almost biological protection for Copart's moat. Communities don't want junkyards near their homes. Existing facilities are grandfathered; new applications face intense opposition. Every year that passes, the barrier to entry rises.

Moat Meditation: Why This Moat Endures

Warren Buffett asks: "What would it take for a competitor to destroy this business?" For Copart, the answer is: approximately $10 billion, 20 years, and permission from hundreds of local zoning boards. The permission part is probably impossible.

But there is a deeper moat here, one that compounds invisibly. It is the network effect.

When an insurance company sends a vehicle to Copart, it is not simply seeking storage and auction services. It is seeking the highest possible price for that vehicle. Higher prices mean lower loss ratios, which flow directly to insurance company profitability. Copart consistently achieves prices 4-8% higher than the declining Manheim Used Vehicle Index. This premium is worth billions annually to insurance carriers in aggregate.

Why does Copart achieve higher prices? Because of buyer liquidity. 800,000 buyers from 170+ countries compete on every auction. More buyers means more competition. More competition means higher prices. Higher prices attract more sellers. More sellers attract more buyers. The flywheel spins.

This is not theory. Copart's earnings transcripts consistently highlight ASP resilience. While used car values dropped 9% in one quarter, Copart's insurance ASPs dropped only 4%. The liquidity premium is real and measurable.

Now consider what happens if a competitor tries to enter. They start with zero buyers. Their first seller gets inferior prices because there are no buyers. Word spreads. Other sellers don't come. The flywheel doesn't spin. This is why no meaningful competitor has emerged in 40 years.

The Owner's Mindset: Would Buffett Hold This for 20 Years?

Let us apply the Buffett "punch card" test. If I could only make 20 investments in my lifetime, would Copart earn a slot?

Arguments for:

1. Secular tailwind: Total loss frequency has risen from 5% to 22% over 35 years. The physics of vehicle complexity suggests it continues rising. Every year, cars become more computerized, more sensor-laden, more expensive to repair. This is not a cycle; it is a structural shift.

2. Pricing power: Insurance companies have no alternative. Copart sets fees. There is occasional negotiation, but the basic dynamic is: you need us more than we need you.

3. Asset-light after initial investment: Once the land is owned, the marginal cost of processing another vehicle is minimal. Gross margins sustain above 45%.

4. International runway: Copart operates in 11 countries but derives 80% of revenue from the US. The same dynamics exist globally. The UK, Germany, and Middle East operations are growing 20%+.

5. Catastrophe optionality: Hurricanes and floods are becoming more frequent and severe. Copart maintains 2,000 acres of reserve capacity specifically for storm response. When CAT events hit, Copart processes more volume at similar or better margins.

Arguments against:

1. Autonomous vehicles: This is the existential question. If accidents disappear, Copart's business model is disrupted. But how likely is this in 20 years? The timeline keeps extending. Even Tesla's FSD remains Level 2. Mixed fleets will persist for decades. And when autonomous vehicles DO crash, the repair costs are astronomical (sensors, LIDAR, computers).

2. Valuation: At 25x earnings, the stock is priced for continued excellence. Any stumble could cause multiple compression. This is not a business concern; it is a timing concern.

3. Management transitions: Willis Johnson is in his 70s. The torch has passed to professional management. Jeff Liaw is competent but not a founder-operator. Culture preservation becomes a question over 20+ years.

Verdict: Yes, Copart earns a punch card slot. The moat is exceptionally durable, the business economics are outstanding, and the secular tailwinds are real. But only at the right price.

Risk Inversion: What Could Destroy This Business?

Charlie Munger teaches us to invert. Instead of asking how Copart succeeds, ask how it fails.

Scenario 1: Technological obsolescence

What if accidents disappear entirely? This requires autonomous vehicles to achieve Level 5 capability, regulatory approval, consumer adoption, and fleet replacement. Each step takes years. Even optimistically, this is a 20-30 year transition. In the interim, ADAS technology actually increases total loss frequency (sensors on bumpers are expensive to repair).

Probability of material impact by 2040: 20% Impact: Gradual volume decline, offset by rising complexity per vehicle

Scenario 2: Regulatory intervention

What if governments mandated vehicle recycling standards that disrupted the salvage model? Possible, but salvage vehicles serve global mobility needs. Developing countries depend on rebuilt vehicles. Any regulation would likely grandfather existing operations.

Probability: 10% Impact: Modest compliance costs

Scenario 3: Insurance industry disruption

What if insurance carriers vertically integrated salvage operations? They tried in the past and divested. The operational complexity, real estate requirements, and technology investment don't fit insurance core competencies. Outsourcing to specialists is more efficient.

Probability: 5%

Scenario 4: Competitive erosion

What if IAA/Ritchie Bros invested massively to gain share? This is the most realistic near-term risk. Ritchie Bros has deep pockets and equipment auction expertise. However, land acquisition takes decades, buyer networks take decades, and insurance relationships take decades. The duopoly will likely persist, with some margin pressure.

Probability of margin pressure: 25% Impact: 200-300bps margin compression over 5 years

Scenario 5: Capital allocation mistakes

What if management squandered the fortress balance sheet on bad acquisitions? Possible, but history suggests disciplined deployment. Purple Wave is strategic. International expansion is organic-focused.

Probability: 15%

Net assessment: The business model is remarkably resilient. The primary risk is overpaying, not business destruction.

Valuation Philosophy: Is Price Justified by Quality?

Here we confront the central tension of investing in wonderful businesses: wonderful businesses are rarely cheap.

At $40.58, Copart trades at:

• 25x earnings
• 32x free cash flow
• 17x EBITDA
• 4.3x book value

These are not "value" multiples in the Graham sense. But Graham's multiples were designed for mediocre businesses with uncertain futures. Copart is neither.

The intellectual framework that applies here is Buffett's owner earnings. What can an owner actually extract from this business?

Copart generates $1.48B in owner earnings annually. At a $39B market cap, that is a 3.8% owner earnings yield. In a world of 4.5% treasury yields, this is not immediately compelling. You are paying a premium for growth.

The question becomes: How much growth is embedded in the price?

Working backwards: At $40, the market implies roughly 10% annual growth in owner earnings for the next decade, discounted at 10%. Is this achievable? Copart has grown revenue at 11.5% CAGR and owner earnings at 14% CAGR over five years. The math is possible but assumes near-perfect execution.

This is where margin of safety evaporates. At $40, you need everything to go right. At $35, you have room for some things to go wrong. At $28, you have room for many things to go wrong.

The patient investor's answer: Copart is worth owning, but not at any price. Wait for $35 or below.

The Patient Investor's Path: When and How to Act

Time is the friend of the wonderful business. But price is the friend of the investor.

Copart stock has declined 30% from its 52-week high of $63.85 to $40.58 today. This is meaningful but insufficient. The business quality is obvious; the valuation is fair but not compelling.

The action plan:

1. Today ($40.58): Observe, do not act. The business meets all quality criteria, but the price offers no margin of safety. Add to watchlist.

2. At $35 (13% lower): Begin accumulating. This price implies 22x owner earnings, which provides modest margin of safety for a business of this quality. Initial position: 2-3% of portfolio.

3. At $28 (31% lower): Accumulate aggressively. This price implies 17.5x owner earnings with room for growth deceleration and margin compression. Position: 5%+ of portfolio.

4. Below $25: Back up the truck. This would represent true panic pricing, likely only in severe recession or market dislocation. Position: 8-10% of portfolio.

The counterargument: What if $40 is the low and the stock runs to $60 without me?

Then I will have missed an opportunity, but I will not have lost money. The Munger principle applies: there is no penalty for not swinging. The goal is not to catch every opportunity; it is to make money over decades without permanent loss of capital.

Copart will be here in five years. Its moat will be wider. Its revenues will be higher. And inevitably, the market will provide an entry point. The market always provides entry points for those patient enough to wait.

Final Reflection

Copart is the rare business that checks every box of the Buffett-Munger checklist:

• Simple, understandable business
• Durable competitive advantage
• Honest and competent management
• High returns on capital
• Minimal debt
• Secular growth tailwinds

The land bank is a thing of beauty - 19,000 acres of irreplaceable competitive advantage, invisible on the balance sheet at historical cost but worth multiples of book value in economic reality.

The network effects compound quietly - every new buyer strengthens the auction, every new seller brings more buyers.

The business is fundamentally good. But goodness has a price, and today that price does not offer sufficient margin for the disciplined investor.

The right move is to wait. To watch. To strike when the market offers fear at a discount.

"The big money is not in the buying and the selling, but in the waiting." — Charlie Munger

Analysis completed February 1, 2026