Model Portfolio Action
Initiate long position 2% model portfolio weight in Copart (CPRT). This is envisioned as a long-term holding rooted in Copart’s strong competitive moat and secular tailwinds, rather than a play on near-term price momentum or valuation.
Company Overview
Copart is a global leader in online vehicle auctions specializing in salvage and resale autos. Founded in 1982 and headquartered in Dallas, the company pioneered digital auctions for totaled and used vehicles. It connects vehicle sellers (insurers, rental fleets, finance firms, etc.) with a worldwide base of buyers (dismantlers, dealers, exporters, even the public) through its patented VB3 online auction platform. Copart operates over 250 storage yards across 11 countries (~10,000 acres), enabling it to process around 4 million vehicles annually and serve roughly 1 million registered buyers in 185+ countries. The company runs a consignment-style auction model (typically not owning the cars itself) and earns fees from both sellers and buyers, resulting in an asset-light, high-margin business. In Q3 FY2025, Copart generated $1.2 billion in revenue (+7.5% YoY) with a 46% gross margin, highlighting the scale and profitability of its platform. Copart’s mission is to maximize salvage value for sellers by exposing vehicles to the broadest buyer pool, while giving buyers an efficient source of repairable cars and parts – this total-loss niche underpins Copart’s dominant market position and long-term growth trajectory.
Executive Summary
Copart enjoys a wide economic moat built on physical infrastructure, a two-sided network, and decades of operational know-how. These advantages allow the company to compound earnings faster than the industry average, aided by secular tailwinds in its market. Total-loss insurance claims are rising: U.S. total-loss frequency hit 22.8% in early 2025 (up ~100 bps YoY to an all-time high), directly driving more volume to Copart’s auctions. Management expects this trend to continue as modern vehicles grow more complex and costly to repair, fueling long-term growth.
Furthermore, Copart’s global buyer base and digital platform produce superior salvage returns for sellers, which reinforces its market leadership. Notably, Q3 FY2025 results showed steady growth (revenue +7.5%, EPS +7.7% YoY) despite flat unit volumes, demonstrating Copart’s pricing power and efficiency. With its unmatched infrastructure and network effects, Copart is positioned to capture outsized industry growth while sustaining ~45–50% gross margins and high returns on invested capital.
Core Thesis: Copart’s entrenched competitive moat and favorable industry dynamics make it a compelling long-term investment. The company’s two-sided network effects, proprietary auction technology, and expansive land footprint form a durable advantage that rivals cannot easily replicate. These strengths, combined with secular growth in salvage supply (driven by rising total-loss rates and frequent severe weather events) and Copart’s disciplined execution, should enable sustained earnings growth largely independent of the broader economic cycle. We believe the market underappreciates Copart’s durable market share and compounding cash flows. While potential risks include a reversal in total-loss frequency trends (e.g. safer cars reducing accidents), increased competition from the merged IAA/Ritchie Bros., or constraints on yard expansion, we view these as manageable relative to Copart’s wide moat. We have high confidence in Copart’s multi-year compounding potential and its defensive characteristics (steady volumes even in downturns, no major customer concentration). Copart offers a rare combination of dominant market position, secular growth tailwinds, and outstanding economics, making it an attractive long investment for institutional portfolios.
Compelling Positives
Dominant Duopoly Position: Copart operates in a duopoly, sharing roughly 80% of the U.S. salvage auction market with its only major competitor (Copart’s share is ~40%). Its volume (~4 million vehicles last year) and 250-yard footprint give it unmatched scale, yielding network effects and deep industry relationships that reinforce its leadership. Notably, no single insurance client contributes over 10% of revenue, reflecting a diversified customer base and broad trust. Copart’s market share is durable, protected by high barriers to entry (land, technology, network) and the absence of credible new entrants in this niche.
Secular Growth Tailwinds: Copart benefits from long-term trends that boost the supply of salvage vehicles. Modern cars are increasingly complex and expensive to fix, so insurers are totaling more vehicles after accidents. U.S. total-loss frequency reached an all-time high of 22.8% in 2025 (up ~1 percentage point YoY), and this upward trend is expected to continue as repair costs rise. External factors like high used-car values and tariffs on auto parts also make repairs less economical, pushing more accident claims toward total losses (as CEO Jeff Liaw noted, expensive parts due to tariffs have made the repair path less attractive). Each additional totaled car directly increases Copart’s auction volume, providing a growth engine independent of new car sales cycles. In addition, catastrophic weather events (hurricanes, floods, hailstorms) regularly generate surges in salvage inventory by destroying portions of the 280+ million vehicles on the road. With these secular tailwinds, including the likelihood of active storm seasons , Copart has a long runway for volume growth regardless of the general economic climate.
Two-Sided Network & Global Buyer Base: Copart’s marketplace has powerful two-sided network effects that are extremely difficult to replicate. Over 750,000 buyers from ~180 countries actively bid on Copart auctions, driving up prices for salvaged vehicles and maximizing recovery values for sellers (insurance companies rely on these higher bids to recoup more on totaled cars). This global buyer reach means even badly damaged vehicles can attract international bidders who may pay more than any local buyer would, which in turn attracts more sellers to list with Copart, a self-reinforcing cycle. Copart was first to move auto auctions online in the late 1990s, and its proprietary VB3 platform plus decades of buyer data give it a lasting liquidity advantage over any newer entrants. The result is industry-best returns for vehicle suppliers and a reputation that “if you want top dollar for a totaled car, Copart is the place.” Each additional buyer and seller only strengthens this network moat over time.
Extensive Physical Infrastructure: Copart has spent decades accumulating the real estate needed to support its operations, and this physical footprint forms a formidable moat. It owns over 250 yards (10,000+ acres) globally, dwarfing any competitor. Suitable large-acreage sites near major population centers are scarce and difficult to get approved, so Copart’s land bank is a huge barrier to entry. This yard network also allows Copart to offer superior service: insurers nationwide are typically within range of a Copart facility, enabling a tow truck to pick up a damaged vehicle within about 24 hours and store it locally. Fast pickup and ample storage save insurers money (avoiding long storage at body shops or on streets) and speed up claim resolution. Copart’s capacity is also crucial during sudden volume spikes from natural disasters, for example, it recently acquired a 400-acre “Hall Ranch” in South Florida, giving it enough space to handle a hurricane three times larger than any historically recorded in that region. By continually investing in extra yard capacity ahead of demand, Copart ensures it can absorb catastrophic surges and remain the go-to provider when volume peaks. Owning this vast infrastructure is capital-intensive and time-consuming to replicate, creating a virtuous cycle where Copart’s greater capacity attracts more business, which in turn funds further expansion of capacity. This physical scale economy further widens Copart’s moat.
Superior Economics and Execution: Copart’s financial profile highlights the quality of its franchise. In Q3 FY2025, it delivered ~47% gross margins (U.S. and global) on $1.2 billion in revenue while still investing in growth. The company’s scale and efficiency drive these economics: a dense network of yards and a digital auction platform allow fixed costs to be spread over millions of units, and each additional auction listing has minimal incremental cost. Notably, facility operating costs per unit did rise ~10% in Q3 (excluding one-time storm expenses) as Copart expanded capacity, but even then operating income grew ~3% YoY, showing it can invest in growth without sacrificing profitability. Copart’s consignment fee model (selling vehicles on behalf of insurers and others) also limits its inventory risk, it earns fees regardless of scrap metal swings or used-car price volatility. Management has a strong execution track record, using technology and process improvements to shorten cycle times (for instance, the Title Express system speeds up title processing so cars sell faster) and to optimize auction outcomes.
Key Risks
Though Copart’s outlook is strong, investors should monitor a few key risks and uncertainties:
Slowing Accident/Total-Loss Frequency: Advanced vehicle safety technology (ADAS, autonomous features) could eventually reduce accident rates or make more collisions repairable, which would slow the supply of total-loss vehicles. If U.S. accident frequency declines significantly or insurers declare fewer wrecks as totals, Copart’s volume growth would be at risk in the long run.
Competition & Pricing Pressure: In the U.S. duopoly, Copart’s main rival, Insurance Auto Auctions (IAA, now merged with Ritchie Bros.), could become more aggressive on pricing or service. Large insurance companies can leverage the two competitors against each other to negotiate lower seller fees or better terms. If IAA/Ritchie were to cut fees or rapidly improve its capacity and technology, Copart might face margin pressure or slower market share gains. To date, Copart’s superior buyer network has helped it win business, but competitive dynamics (and any new niche entrants) bear watching.
Land Use and Expansion Constraints: Copart’s growth relies in part on expanding its storage yard footprint, which may face challenges. Industrial-zoned land near metro areas is limited, and securing permits for large salvage yards can be difficult due to zoning, environmental, or community objections. If Copart cannot continue acquiring or expanding yards at reasonable cost, it could eventually hit capacity limits that slow volume growth or hurt service (e.g. longer towing distances or overcrowded lots). The company mitigates this by proactively buying land and maintaining excess capacity, but these constraints could intensify as urban land becomes more scarce and expensive.
Macroeconomic & Cyclical Factors: While salvage volume has secular drivers, certain macro factors can create short-term volatility. For example, a sharp drop in used-car prices (say, if new car production surges and flooding the market with used inventory) could reduce auction proceeds and thus Copart’s fee revenue per vehicle. Likewise, a collapse in scrap metal prices might dampen demand for lower-value salvage. Economic downturns that reduce driving (fewer miles driven during recessions or lockdowns) can temporarily lower accident rates and salvage assignments. Historically, however, these effects have been transient, baseline total-loss volumes have stayed resilient through cycles, and some macro changes actually help (e.g. tariffs that raise parts prices make totaling a car more likely). Overall, no economic swing to date has derailed Copart’s growth, but cyclical fluctuations in volume or pricing can occur around the secular growth trend.
Client Concentration and Behavior: Copart’s revenues are well diversified among insurers (no single insurance company provides more than 10%), but the top ten carriers account for a substantial portion of its supply. Industry consolidation or shifts in insurers’ strategies could pose a risk. For instance, if a major insurer decided to handle salvage disposal in-house or shifted more assignments to a competitor, Copart could lose volume. That said, insurers generally find it inefficient to manage salvage themselves, and with essentially two national options (Copart and IAA), there are few alternatives. Copart’s decades-long relationships and track record of maximizing returns make widespread client defection unlikely, but any signs of a large contract loss or change in insurer behavior (shorter claim cycles, fee pressure, etc.) would be important to monitor.
None of these risks, individually or together, negates the long-term investment case for Copart given its wide moat. In fact, some factors like rising parts costs indirectly boost its business. We will be monitoring total-loss frequency trends, competitive behavior post IAA/Ritchie Bros. merger, and Copart’s ability to continue expanding yard capacity. Overall, however, we view Copart’s risk/reward as favorable, its entrenched advantages should allow it to weather these challenges while continuing to grow.
Competitive Advantages
Copart’s moat is built on several interlocking competitive advantages that together create high barriers to entry and support persistent high returns:
Network Effects – Global Marketplace Leadership: Copart’s scale has created a self-perpetuating network effect in the salvage auction market. On the supply side, virtually every major insurance provider (and many fleet owners) send their totaled vehicles to Copart, ensuring a steady inflow of inventory. On the demand side, hundreds of thousands of buyers worldwide are registered on Copart’s platform. This two-sided network means more buyers lead to higher bid prices and better recoveries for sellers, which attracts even more sellers to use Copart. It’s a classic winner-take-most dynamic: Copart’s early move online (in 1998) and decades of market-building have given it a liquidity pool that smaller rivals simply cannot match. A local auction yard, for example, can’t tap into the international buyer who might pay a premium for a particular wreck, but Copart can. Each additional participant (buyer or seller) increases the value of the marketplace, widening Copart’s lead over time and making it nearly impossible for a new entrant to reach critical mass.
Physical Footprint & Logistics Capability: Salvage auctions aren’t purely digital; they require extensive physical operations, and Copart’s brick-and-mortar presence is an enormous advantage. The company owns an unparalleled network of yards (250+ locations across the U.S. and abroad), totaling over 10,000 acres of vehicle storage. This gives Copart the capacity and geographic coverage to handle high volumes and sudden surges (like catastrophe influxes) that would overwhelm smaller competitors. Many competitors would struggle to find and permit even a few large new sites, whereas Copart has built out a nationwide (and international) logistics web. Having yards near virtually every major metro means Copart can pick up vehicles quickly and shorten towing distances, accelerating the insurance claim cycle. Copart also runs its own fleet of tow trucks and can tap third-party towers as needed. Owning so much industrial land provides long-term security, Copart isn’t subject to rising rents or lease terminations, and land often appreciates, strengthening the balance sheet. Crucially, replicating this footprint is prohibitively difficult: zoning and environmental approvals for large salvage yards can take years (if they’re attainable at all, given community opposition), and suitable land is increasingly scarce. Copart’s existing sites often have grandfathered permissions that a would-be rival cannot obtain today. In short, Copart has built the “rails” of the salvage industry through its logistics and real estate, a moat that competitors find nearly impossible to bridge.
Proprietary Technology & Data: Copart’s investment in technology gives it a significant edge in efficiency and user experience. Its patented VB3 auction platform enables 100% online auctions with features that mimic the competitive bidding of live auctions in a fast, user-friendly way. The system can handle massive scale, at any given time Copart lists upwards of 175,000 vehicles and processes millions of bids per year, and it easily scales as volume grows. Copart continually improves its tech stack (adding mobile bidding apps, AI-driven image processing, digital title handling, etc.) to stay ahead of the curve. Equally important, Copart has amassed decades of data on salvage values, bidder behavior, and market demand for various vehicle types. This data helps optimize operations: Copart can intelligently sequence auction lots, target the right overseas buyers for specific inventory, and detect fraudulent bidding or non-payments. Technology also helps speed up throughput; for example, Title Express digitizes title transfer to reduce the days a car sits idle before auction. All these tech and data capabilities translate into faster sales and higher proceeds for sellers, which reinforces client loyalty. While competitors also use online auction systems, Copart’s homegrown platform and deep data trove form an intangible moat.
Switching Costs & Deep Customer Relationships: Over its 40+ year history, Copart has become deeply embedded in the operations of its customers. For insurance companies, Copart is essentially an extension of their claims department, the company provides integrated services like vehicle pickup, inspection yards for adjusters, title processing, and even on-site support teams when catastrophes strike. Copart often integrates with insurers’ internal software to streamline assignments. This high level of integration creates significant switching costs: if an insurer tried to move all its salvage to a competitor, it would face workflow disruptions and almost certainly lower recovery rates (since the competitor likely has a smaller buyer base). Many insurer relationships with Copart span decades, building trust that Copart will maximize returns and handle spikes in volume (e.g. hurricane losses) capably. On the buyer side, tens of thousands of dismantlers, rebuilders, and car exporters depend on Copart as a key source of inventory for their businesses. Copart’s sheer volume and variety of vehicles make it indispensable, buyers might also use IAA, but they can’t afford to ignore Copart’s marketplace given its size. Copart enhances this stickiness by offering value-added services such as financing, transportation, and international shipping assistance for purchases, making it a one-stop shop for buyers. The result is a very stable customer base on both sides of the auction: clients are generally reluctant to leave a platform that is so ingrained in their processes and that consistently delivers results, absent a truly compelling alternative.
Financial Strength & Reinvestment Ability: Copart’s financial position and management approach provide a meta-level competitive advantage, the ability to continually fortify its moat. The company generates ample free cash flow and carries minimal debt. This gives Copart the firepower to invest through economic cycles and unexpected events. For example, it can opportunistically purchase strategic land (as it did recently, spending $65 million on 40 acres in Florida to expand storm-related storage capacity) without financial strain. It can also fund technology upgrades or acquisitions of niche players (like powersports or equipment auction platforms) out of its own cash. Smaller competitors lack this capability, they would need to borrow or dilute equity to match Copart’s investments. Copart’s management, led by long-tenured executives (CEO Jay Adair has 30+ years at the company) who are also significant shareholders, has shown disciplined capital allocation. They consistently prioritize projects that enhance the moat (land, tech, selective M&A) over short-term boosts such as large buybacks or dividends. This reinvestment ethos means Copart’s competitive gap tends to widen over time: each year the company’s cash flows fund additional yard capacity, technology improvements, and strategic expansions that strengthen its dominance. Insider ownership of roughly 10% aligns management with shareholders and encourages a long-term focus on value creation. In essence, Copart’s finances and prudent reinvestment strategy ensure it can continuously compound its advantages, whereas any would-be challengers face an uphill battle to even come close.
In short, these interlocking advantages make Copart’s market position extremely resilient. Its combination of a vast network, irreplaceable infrastructure, proprietary tech and data, sticky relationships, and financial muscle has resulted in superior margins and returns on capital for years, and we expect that to continue.
Competitive Landscape
The salvage auto auction industry is structured as an oligopoly, with Copart as the clear leader among two dominant players. Its primary competitor is Insurance Auto Auctions (IAA), which historically held a market share comparable to Copart in the U.S. (each roughly ~40% of the salvage volume). In 2023, IAA was acquired by Ritchie Bros. (a large industrial auctioneer), but together they still function as Copart’s main rival in the salvage domain. Copart and IAA handle the vast majority of totaled vehicle auctions in North America, on the order of 5 million salvage vehicles a year between them, while any remaining market share is fragmented among small regional operators (the next-largest competitor has only a few percent share). Both Copart and IAA have nationwide yard networks, relationships with all major insurance companies, and online auction platforms, making it hard for any third competitor to break in. That said, Copart has been outpacing IAA in recent years on several fronts. Copart’s international buyer base is larger, and it has expanded more aggressively overseas, whereas IAA (pre-merger) was mostly U.S.-focused. Copart’s tech platform and operational efficiency have also contributed to higher margins and returns than IAA historically achieved (when IAA was a standalone public company, its profit margins trailed Copart’s, suggesting a slightly weaker model). Insurers often split assignments between Copart and IAA in a given region to maintain competition, but they tend to allocate more volume to whichever partner yields better results. Copart’s ability to consistently deliver higher auction returns (thanks to its broad buyer network that includes many overseas bidders) has helped it gradually win share at IAA’s expense over time. Importantly, other types of auction companies (such as the wholesale used-car auction firms Manheim and ADESA) are not direct competitors here, those firms handle dealer trade-ins and fleet vehicles that are still drivable, not insurance total-loss cars. The salvage segment is distinct and has high barriers to entry, which has effectively kept it a two-player game. Notably, salvage auctions are less tied to new car sales cycles and more to the large base of vehicles on the road, which means the overall volume is relatively steady and growing (as Scuttleblurb has pointed out, the “stock” of vehicles in operation generates a consistent flow of salvage over time). This makes the competitive landscape structurally attractive: Copart operates in a stable duopoly with a recurring supply of inventory and limited threat of new entrants.
Internationally, Copart faces mostly fragmented competition and has used its strengths to enter and dominate new markets. In the UK and Germany, for instance, Copart became a leading salvage auction provider through acquisitions of local companies, leveraging its technology and global buyer reach to improve those businesses. IAA/Ritchie Bros. has a much smaller international presence (though Ritchie’s global operations in equipment auctions could provide a platform for IAA to expand overseas, that will take time and investment). Other countries have their own local salvage auctioneers, but none offer the scale or international marketplace that Copart does. Copart often either acquires these players or forms joint ventures (e.g. Copart has a Middle East JV) to quickly establish itself in new regions. The result is that Copart has a growing global footprint, whereas its primary competitor is still catching up outside North America. The likelihood of a brand-new entrant disrupting the industry is low – no startup can easily replicate 250 yards or sign long-term contracts with all major insurers overnight. In fact, the last successful new entrant was IAA itself decades ago; since then, no third competitor has gained traction at scale. Thus, the key competitive dynamic to watch remains Copart vs. IAA (now backed by Ritchie Bros.). We expect Copart to maintain or extend its lead given its stronger network effects and track record, but having a capable #2 in the market does impose some discipline (for example, insurers will negotiate on price knowing they have two options). Fortunately, both major players have historically been rational, and price wars have been avoided – the industry structure has allowed healthy margins for both. Copart’s focus is on continuing to out-service IAA (through better returns and capacity) and expanding into adjacent auction verticals (like heavy equipment via its Purple Wave partnership, or powersports via its NPA acquisition) to drive further growth. Overall, the competitive landscape is favorable for Copart: it holds the upper hand in a high-barrier duopoly and faces little threat of new competition, which supports its ability to earn strong returns long into the future.
CPRT Weekly Chart (Log Scale):
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Valuation seems high relative to the growth. Are you comfortable with the premium due to the margins?