One of my favorite — and possibly simplest — investing strategies is to “buy the dip” on steady Eddie stocks that have long track records of stomping the market.
While past performance doesn’t guarantee future returns, looking among previously “winning” stocks that have sold off over what appear to be short-term worries can be a great way to find excellent investments at fair prices.
A perfect example of a stock fitting this mold today is Copart (CPRT -0.58%), operator of the leading online auction platform for (mostly) totaled vehicles.
Copart has been a 341-bagger since its initial public offering in 1994. But the stock’s path has not been straight up. Over the past three decades, the company has offered investors more than a dozen buy-the-dip opportunities at least as significant as its recent 20% decline.
With its share price down (temporarily, I expect) again, here’s why I think Copart is a no-brainer S&P 500 stock to buy on the dip.
Copart’s wide moat
Copart owns more than 250 salvage yards, most of them spread across North America (though it operates in 11 countries total), and processes more than 3 million vehicle sales annually via its online auction platform. With a market share of about 45%, the company is the leader in its niche, headlining a virtual duopoly with RB Global, which bought IAA. The two combine for roughly 80% of the total salvage vehicle industry.
Copart’s most common types of transactions involve insurance companies selling totaled vehicles on its virtual platform to dismantlers, car repair shops, used car dealers, exporters, recyclers, or even the general public. Sales of cars from insurance companies accounted for 81% of Copart’s business in 2024.
Whether it’s the auction, or the towing, storage, inspections, merchandising, title processing, and logistics (including pickup and delivery) of the vehicle itself, the company is a one-stop shop for all the services needed to move such transactions along.
However, what makes Copart a fantastic long-term investment is its wide moat.
Since its properties are primarily salvage yards, Copart benefits from the power of NIMBY (not in my back yard) sentiment. In most locations, residents will fight against anyone who tries to get zoning approval for a new junkyard. That somewhat insulates Copart from the threat of new competition.
In addition to this wide moat, the technological density and complexity of vehicles continue to skyrocket, which could provide a decades-long tailwind for the company as more cars are declared “totaled.” Since complex car parts are more expensive to replace, the threshold for an insurer to deem a car “totaled” rather than foot the bill for repairs continues to skew further into Copart’s favor over time.
Image Source: Getty Images.
Leading the salvaged vehicle duopoly
Copart’s duopoly partner, IAA, was acquired by commercial construction and transportation auction platform RB Global for $7 billion in 2023. Though this created a powerhouse auction platform for all types of vehicles, I’d argue that Copart remains the more efficient of the two.
Over the last two decades, Copart’s average free cash flow (FCF) margin and cash return on invested capital (ROIC) have been higher than those of its primary peer.
CPRT Owners’ Cash Profits Margin and Cash ROIC (TTM) data by YCharts.
While bringing IAA into the fold could help boost these figures for RB Global, it is worth noting that IAA leases the majority of its salvage yards. By contrast, Copart owns most of its properties. These added costs erode RB Global’s overall efficiency and margins, prompting me to take a more cautious approach to its stock as it continues to integrate IAA.
Furthermore, despite owning nearly all of its properties, Copart is debt-free and holds $4.4 billion in cash on its balance sheet, equivalent to approximately 9% of its market capitalization of $49 billion. As for RB Global, it has a net debt balance of $2.1 billion compared to a market cap of $19 billion.
I’m not saying that RB Global is at risk of going out of business. I just want to emphasize that Copart is well equipped to buy more property, repurchase its own shares, or merely ride out an increasingly turbulent market.
Lastly, Copart’s partnership with Purple Wave (a heavy equipment auctioneer similar to RB Global) and its BlueCar business (which serves rental car companies, fleet partners, and banks) offers both potential growth options and diversification.
A more reasonable valuation
Following the sell-off that took place after it reported its fiscal 2025 Q3 earnings in May, Copart now trades at 28 times cash from operations (CFO). That’s its lowest valuation by that metric in over two years, but close to the company’s average over the last decade.
CPRT and RBA Price to CFO Per Share (TTM) data by YCharts.
While its P/CFO ratio remains above RB Global’s mark of 20, its relative premium may be justified: Copart has grown its sales by 10% over the last year, compared to its peer’s 2% growth. Since Copart delivered revenue growth of 8% in the last quarter and sold off — but RB Global grew sales by 4% and rallied — now seems like a perfect “buy the dip” opportunity for investors looking at Copart.
Yes, the company still trades at a slight premium to the market and its peers. However, Copart:
- Is the leader in a duopoly.
- Enjoys a wide moat thanks to its geographic presence.
- Should benefit as vehicles become harder to fix.
- Maintains better profitability and has a better balance sheet than its primary peer.
- Is down 20% from its highs — a somewhat rare occurrence.
I look forward to buying the dip on this no-brainer S&P 500 stock soon.
