When Auction Engines Sputter: Copart’s Great Used-Car Conundrum
Copart, Inc. (NASDAQ: CPRT) has spent the last three months in the market’s penalty box, its shares tumbling 24.3% despite another quarter of record-breaking revenues. How does a company at the heart of the used car gold rush end up spinning its wheels?
Chasing Ghosts in a Booming Market
The paradox is striking: Copart’s Q3 2025 revenue clocked in at $1.2 billion, up 7.5% year-over-year, with global service revenue notching a 9.3% gain. Gross profit margins remained a robust 46%, net income margin hovered above 32%, and the company sits atop a $5.6 billion liquidity mountain. Yet, the market has been merciless—down 21.1% over six months and 10.6% for the year. Why?
Copart’s business rides on the winds of the used car market, and those winds have grown unpredictable. While used car prices rose 4.9% since June to their highest since October 2023, that’s only half the story. Inventory remains tight (down 5% year-on-year), demand is solid, but affordability is a growing menace. High interest rates and sticky inflation have narrowed the gap between new and used vehicle prices, luring some buyers to new cars instead. In this topsy-turvy market, Copart’s core insurance segment saw volumes stagnate, and global purchased vehicle sales dipped by 2% in Q3.
Tariffs, Trade, and the Art of Uncertainty
Tariffs have become the car industry’s spoiler-in-chief. The U.S. slapped 25% tariffs on imported vehicles and auto parts, fueling both price anxiety and supply chain headaches. Add in the threat of new rounds of tariffs and the shadow of global trade fragmentation, and institutional investors are justifiably wary. Copart’s U.S. purchased vehicle revenue rose 22% in Q3, but gross profit in that segment plummeted by 187%—a sign that rising costs are eating into the gains from higher vehicle prices.
Meanwhile, international results have turned into a game of whack-a-mole: revenue from abroad fell 25% while international gross profit climbed 22%, highlighting how currency swings and shifting demand can scramble even the best-laid plans.
The CEO Shuffle and the Weight of Expectations
Markets thrive on certainty, and Copart’s March 2024 leadership shuffle—Jeff Liaw taking the CEO helm solo—sparked questions about succession, vision, and strategic direction. Investors, already on edge from macro shocks, may be demanding more than steady hands; they want bold moves and new engines of growth.
The acquisition of Purple Wave (heavy equipment auctions) and investments in AI-driven claims processing with Hi Marley signal Copart’s intent to diversify, but these initiatives are still ramping. With a forward-adjusted PE hovering between 30-40x, the market expects flawless execution. Any hint of slowing growth or margin compression is met with outsized punishment.
When the Storm Clouds Build
Copart’s story is also one of cyclical exposure. The company is prepping for an “active 2025 storm season”—good news for insurance claim volumes, but also a reminder that catastrophe-driven spikes are hard to forecast and even harder to sustain. Meanwhile, rising rates of uninsured drivers and softness in heavy equipment auctions (thanks to stalled infrastructure spending and tariffs) are weighing on sentiment.
The Auctioneer’s Dilemma
For all its tech prowess and operational muscle—owning 17,000+ acres, 90% outright—Copart faces a simple, brutal truth: the auto market is in flux, and investors are allergic to ambiguity. Even as Copart churns out record profits and free cash flow (FCF/Sales at 22.7%, FCF/EBITDA at 57.7%), the market craves clarity on growth catalysts beyond the next storm or the next insurance cycle.
In the end, Copart’s 24% stock slide isn’t about what it’s done wrong, but rather what it hasn’t yet proven it can do next. Until the dust settles on tariffs, rates, and the global economic chessboard, Copart will remain a vehicle both admired and doubted—a classic case of fundamentals at odds with fickle market moods.