CPRT Forensic Analysis
Price Targets (12m)
🐋 Risk Whale Analysis: CPRT (Copart, Inc.)
Executive Summary
Analysis Date: 2025-12-09
CPRT presents a compelling short opportunity driven by a severe valuation disconnect and a significant, unpriced legal risk. While the company boasts a fortress balance sheet with $5.23B in net cash and strong operating margins of 37.3%, its revenue growth has stalled at 0.7% YoY. The current price implies a demanding ~13% FCF growth rate for the next decade, a high bar for a business facing an unquantifiable DOJ investigation into money laundering controls.
Recent Material Events (8-K Analysis)
- •✅ 2025-11-20 (Form 8-K): Standard earnings release concurrent with the latest 10-Q filing. No material information was disclosed that was not included in the quarterly report.
- •✅ 2025-09-04 (Form 8-K): Prior earnings release for fiscal year-end. This information is superseded by the most recent 10-Q.
Insight: No recent corporate actions or events have fundamentally altered the business since the last quarterly report. The primary focus remains on the operational results and risk disclosures within the 10-Q.
Insider Trading Activity
- •⚠️ Frequent Filings (Sep-Nov 2025): Multiple Form 4s were filed by insiders in the last quarter.
- •Signal: While the exact nature (buy/sell) is not detailed in the provided data, a pattern of frequent filings without significant open-market buys suggests routine selling, likely via 10b5-1 plans or option exercises. This indicates insiders are not aggressively accumulating shares at current prices, signaling a lack of conviction in further upside.
Current News & Market Context
- •🔴 DOJ Investigation: The most critical development is the ongoing investigation by the U.S. Department of Justice into potential violations of money laundering laws. The company explicitly states in its 10-Q that it is unable to predict the scope, result, or range of possible loss.
This is a major overhang and a potential short catalyst. The market appears to be under-appreciating the risk of a substantial fine, reputational damage, or mandated changes to its business practices which could impact its international buyer base.
Business Model Analysis
- •Revenue Mix: Primarily service-based (86% of revenue) from auction fees, with a smaller portion from direct vehicle sales (14%).
- •Pricing Power: Operates in a duopoly with IAA (now part of Ritchie Bros.), affording it significant pricing power. High barriers to entry exist due to the extensive real estate footprint required for vehicle storage yards.
- •Network Effect: The VB3 online auction platform creates a powerful network effect, connecting a global buyer base with a concentrated supply from insurance carriers.
Financial Health
💰 Fortress Balance Sheet: The company holds a massive $5.23B in cash and equivalents with zero long-term debt. This provides immense stability but also raises questions about capital allocation.
💰 Strong Cash Flow: Generated $535M in cash from operations in the latest quarter. The cash conversion cycle is healthy and consistent.
| Metric | Q1 FY26 (ended 10/31/25) | Q1 FY25 (ended 10/31/24) | YoY Change |
|---|---|---|---|
| Total Revenue | $1.155B | $1.147B | +0.7% |
| Operating Income | $430.7M | $406.4M | +6.0% |
| Operating Margin | 37.3% | 35.4% | +190 bps |
| Net Income | $402.2M | $361.2M | +11.4% |
| Diluted EPS | $0.41 | $0.37 | +10.8% |
The story is clear: impressive profitability and margin expansion (driven by lapping prior-year hurricane costs) but dangerously anemic top-line growth.
Valuation Analysis
- •
🔴 Reverse DCF Implies High Growth: At a current price of $38.41, CPRT's Enterprise Value is ~$32.3B. To justify this valuation, the company must grow its free cash flow by approximately 13% annually for the next ten years. This is a stark contrast to the recent 0.7% revenue growth.
- •
Price Context: The stock price has remained resilient, suggesting the market is either ignoring the growth slowdown or is completely blind to the DOJ risk.
| Metric | Value |
|---|---|
| Market Cap | $37.5B |
| Net Cash | $5.23B |
| Enterprise Value (EV) | $32.3B |
| TTM FCF (Est.) | $1.71B |
| EV / FCF | ~19x |
Competitive Position
- •✅ Dominant Market Player: CPRT is a leader in the salvage auto auction market, a duopoly with high barriers to entry. Its physical footprint and technology platform are difficult to replicate.
Management Quality
- •✅ Operational Excellence: Management has demonstrated an ability to control costs and expand margins effectively.
- •⚠️ Risk Management Questions: The ongoing DOJ investigation raises serious questions about the robustness of the company's compliance and risk management frameworks, particularly concerning its international and online customer base.
Risk Factors
- •🔴 Legal & Regulatory Risk (High Severity): The DOJ investigation is the primary risk. An adverse outcome could lead to massive fines and operational restrictions.
- •⚠️ Valuation Risk (High Severity): The stock is priced for a growth trajectory that is not reflected in recent performance. Any failure to meet these high expectations could lead to a sharp de-rating.
- •⚠️ Growth Deceleration (Medium Severity): Stagnant U.S. revenue growth is a concern. The business is sensitive to accident frequency and total loss rates, which can be impacted by macroeconomic factors.
Forensic Accounting Flags
- •✅ Revenue Quality: Accounts receivable declined slightly while revenue was flat, indicating healthy collections. DSO is stable at ~59 days.
- •✅ Stock-Based Comp (SBC): SBC is minimal at only $9.3M for the quarter, representing just 2.3% of net income. Not a concern.
- •✅ Share Count: Dilution is negligible, with the share count increasing by only 0.06% YoY.
Short Thesis
The investment case for shorting CPRT is built on a clear trifecta of risk: an unsustainable valuation, stalled growth, and a significant, unpriced legal overhang.
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Priced for Perfection, Delivering Stagnation: The market is valuing CPRT as a high-growth company (13% implied FCF growth) when its latest quarterly revenue growth was below 1%. This disconnect provides a substantial margin of safety for a short position.
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The DOJ 'Black Swan': The money laundering investigation is a high-impact, low-probability (in the market's eyes) event. Any negative news—a settlement figure, an indictment, or required operational changes—could serve as a powerful catalyst to shock the market and force a re-evaluation of the stock's risk profile.
- •
Lack of Near-Term Catalysts for Upside: With insiders not buying, growth slowing, and a legal cloud overhead, it is difficult to identify a near-term catalyst that would justify the current premium valuation.
Catalysts & Timeline
- •Short-Term (0-6 months): Any announcement or leak regarding the DOJ investigation. The next earnings report (Q2 2026, est. Feb 2026) confirming continued low single-digit or flat growth.
- •Medium-Term (6-12 months): A formal resolution of the DOJ case or a broader market de-rating of high-multiple, low-growth stocks.
Price Targets
| Scenario | Price Target | Rationale |
|---|---|---|
| 🐂 Bull Case | $45 | DOJ investigation resolves with a negligible fine; growth unexpectedly re-accelerates due to a spike in accident rates. |
| 🐻 Bear Case | $28 | A significant DOJ fine is announced, and growth remains stagnant. The stock de-rates to a more reasonable 15x-16x FCF multiple. |
Investment Recommendation
SHORT with a High Conviction (8/10). The asymmetry is heavily skewed to the downside. The combination of a stretched valuation and a specific, material legal risk creates an ideal setup for a risk-seeking investor.
One-Liner Thesis
CPRT is a high-quality business priced for a level of growth it is not delivering, with an unquantifiable DOJ investigation providing a potent catalyst for a significant valuation re-rating to the downside.