TIVP097 (Video): Copart Stock (CPRT): Is Copart now a Buy? w/ Daniel Mahncke & Shawn O’Malley

Speaker A: About 10 months ago, we covered Copart, and it's one of the most quoted examples for a quality compounder, which is a boring business with high margins, high returns on capital, and operating in a

Speaker B: duopoly, a duopoly that it dominated for the longest time. And with that said, uh, their competitor is gaining market share, which is weighing on the stock. But I love that management has been super proactive about buying back shares again. They clearly think the stock is, is trading at a bargain price.

Speaker A: The last time they bought back meaningful amounts of share was more than a decade ago. And now the new CEO, who is also the old CEO, Jader, is back to get Copilot back on track.

Speaker C: You're listening to the Intrinsic Value Podcast by the Investors podcast network. Since 2014, with over 180 million downloads, we've learned directly from the world's best investors. Now we're applying those lessons to analyze businesses and investment opportunities every week, helping you uncover, um, intrinsic value. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. And now, here are your hosts, Sean o' Malley and Daniel Munka.

Speaker B: Perhaps we should start with our own history with Copart. You pitched the stock in October of last year, and at that point Copart was already down 30% from all time highs. But as we know today, there was still some room for even more pullbacks beyond that. And we don't try to time the market. And we didn't sell because we speculated on where the stock was going to go in the next few months. But it did feel like the right decision to free up some capital by selling Copart and invested elsewhere. And the stock has had a rough time since then, which makes the decision look prescient, even if it was mostly just random luck.

Speaker A: I think it's always random luck whenever we make buy or sell, uh, decisions. No, but jokes aside, I mean, Copa has been a 2% position back then when we bought it. And just for context, a 2% position usually means it's sort of on probation. So we're basically not yet completely sold on it, either because of valuation or simply because we have some quality concerns. And I think I could speak for the both of us when I say that with Copart, it was certainly the former. I think we all know the quality is quite high. But as you said, the stock was perhaps fairly valued. Definitely not cheap at that point. And I feel like sometimes you also just need to zoom out and simplify so you don't miss the most important things. And if you do that for Copart, you will find out why the stock is where it currently is, which is that top line growth has been slowing down dramatically if you look at the last two or three years. So that was, you know, the major common denominator in our Biggest Loser episode just a couple of weeks ago, that stock prices tend to follow top line growth and co parts slow down from just mid teens to basically no growth at all.

Speaker B: That's the story for today. Thanks for tuning in, folks. No, I'm joking, of course. What is interesting for Copart, I think, is that while they have the reputation as being one of these high quality compounders, they have had these growth slowdowns before. And we're used to the software charts by now that only go in basically one direction, up and to the right. But Copart is fundamentally a more cyclical business. And so the last time revenue growth stalled out was in 2015. But again, that was not fatal to shareholders by any means. And to be fair, it does help that earnings per share grew consistently despite some revenue volatility. But before we get deeper into the numbers and what has changed since our first time pitching the company, how about you just give us a little summary of the pitch for Copart first. So we're all on the same page.

Speaker A: Yeah. So if I had to summarize Copart's business in just one sentence, it would probably be that Copart is a marketplace for total cars. So every year, millions of cars reach the end of what you can call their useful life, whether that would be through a crash or a hailstorm, a flood, or just because of old age, um, which is most often the actual reason. But most of those cars, they go to an insurance company. And those insurance companies are essentially Copart's main customer base. So they want to get rid of the car. And Copart takes care of that by connecting the seller, which is the insurance company, with a potential buyer. And buyers usually include dismantlers or recyclers, um, used car dealers, international exporters, auto repair shops, but also individual, you know, let's say hobbyists or private buyers from basically all around the world.

Speaker B: Many cars sold through Copart to private buyers actually end up on South American streets. For example, from what I've heard, I think when we first did the episode, you'd actually just got back from a little vacation in the Dominican Republic. And I remember you saying that a lot of the cars there looked like they could have been from a uh, Copart lot.

Speaker A: Yeah, I think emerging markets tend to be where Copart's cars are being bought by private buyers. So there were definitely some cars in the Dominican Republic that wouldn't have passed the German turf. And I actually talked to you about it before the episode because I hoped you might know what the German turf actually is. Um, you didn't. And so, just for context, for the American listeners, the turf is the official technical inspection association in Germany. And I've googled it, and apparently there's no equivalent in the US and car safety for you guys is more of a state to state department thing, I guess. But you can think of it as every single German car has to go to the German turf, and only if they approve, you can actually drive it on the streets. And I should add that in its core business, Copart doesn't take ownership of any of the cars. So it's just a marketplace that, as part of its service, also handles the logistics, which is kind of like Amazon, but for used cars. So Copart tows the vehicles, they, you know, park them in one of their yards, they photograph them, they handle the paperwork, and then they run the auction where they actually sell those cars. Then they basically take a fee from both the seller side, so those are the insurance companies and the buyer side, which, for example, could be, you know, uh, a dealer.

Speaker B: And just to run through a quick example, so we're all on the same page, let's say you get rear ended and your insurer now has a decision to make. Either repair the car or, uh, write it off and pay you out. And if the repair costs, let's say, $5,000, and the insurer thinks it can recover more than $5,000 by selling the wrecked car, it writes the car off and sells it, and if not, it repairs it. And so in the industry, you call the outcome of that decision the total loss frequency, the percentage of accident claims where the insurer decides the car isn't worth repairing. And the higher the total loss frequency, the better it is for Copart, because that means they're getting more cars coming into their platform.

Speaker A: And the interesting part in the last decades is that this has been a major tailwind for Copart. So Jay Adair, who is the old and also the new CEO, and we'll explain that later on in the episode, he recently said in an investor call that the total loss frequency when he started, which was about 35 years ago, was only 8%, and today it's almost

Speaker B: 24%, which is counterintuitive at first because you would think that cars have become much safer, leading to fewer catastrophic accidents, which, again, should lead to fewer totaled cars. But actually, the modern car is packed with expensive sensors, much to my mom's chagrin, who has a new car and hates it.

Speaker D: Cameras in the mirrors, radar in the

Speaker B: bumper, parking sensors, lane assist, all that stuff does, in theory, help make the car safer, but it also makes the car itself more fragile and expensive to fix, because after a collision, every one of those sensors has to be recalibrated, which costs a lot of time and a lot of money.

Speaker A: There are a lot of these photos of, uh, I think mostly Teslas, but that's just because they are the most modern cars out there right now, where you just see a minor accident happening and then suddenly the car is totaled and it looks completely fine. To be honest, there's just some, um, cameras that were hit, and even that can total a car by now. But another interesting point that the EX CEO Jeff Liao made in one of his latest earnings calls is that copilot is not only a passive beneficiary of an increase in the total loss frequency, but they actually help drive it upward. So basically, every additional dollar that Copart gets for a car at an auction makes it more attractive for insurers to just total the car and then send it to Copart for auction. And he sort of framed it as basically competing with the repair shops, right? Every car that goes to Copart and doesn't get into a repair shop is a win for them. So the higher the returns Copart generates, the more often it wins the right to resolve that claim instead of that car going to the body shop. And it's a great system because it also aligns Copart and the insurance companies much better. So not only is it more profitable for the insurance business to give gopod the cost and the volume, but Copart's fees also scale with higher sales prices then on the seller side they often use, and I think I mentioned that last time, something that is called percentage incentive program. So basically, that means that copod's fees is a percentage of the car sale price, and buyer fees typically range from 7 to 13%, depending on the car and the buyer's volume.

Speaker B: And as we mentioned last time, roughly 80% of the fees come on the buyer's side, not with the insurance companies. And the reason behind that is there are only about a dozen insurance companies of size, so it's a very concentrated group of suppliers with pretty high negotiating leverage. And then on the buyer side, you have thousands of dismantlers and dealers and exporters. So it's highly fragmented set of vehicle buyers, and there's little to no negotiating leverage. Correspondingly to. But besides the core business with insurance companies, there's also a second business called vehicle sales. So maybe you can explain what that is and the overall revenue breakdown for the company, what that looks like.

Speaker A: Yeah, so, as you said, basically the vast majority of revenue comes from service revenue, which is the business that we just discussed. And it's called service, because again, you know, Copilot is doing a lot of the logistics, and they basically take on what otherwise insurance companies would need to do. That's why they call it Service. The other 15 or so percent of the business come from what they call vehicle sales. So that's the part of the business where Copart actually takes ownership of a car and then sells it through its own channel. So that model is a lot more common in Copilot's international businesses. And again, we talked about that last time. Mostly that's the case because the service model is established in the US but it's not yet widely adopted in most international markets. And to show international customers the advantages of selling on Copilot, which again, primarily comes from the liquidity that the auction offers, they basically buy cars outright and then sell them as proof of the model in their own auction. And basically the goal is that over time, they can convert them into the fee or the service model, which is a much higher margin business for Copart. And this works quite well. International service revenue is up almost 20%, while vehicle revenue is dropping close to 20%. Now, obviously you might ask yourself, why is it good to see revenue drop, in this case, vehicle revenue? But the reason is that that means international markets are in fact adopting the higher margin service model, which is what you want to see. Actually, in one of the latest earnings calls, they point out Germany as an example, because Germany's model is completely different from the US model. So when a car is deemed a total loss here, the insurer traditionally pays the policyholder the replacement value minus the RAC's residual value. Then the policyholder keeps the rec, basically, and has to sell it themselves. And that's a pretty bad model because at the end, you're still sitting on your total car and you have to deal with selling it yourself. I should add, though, this is not always the case, unfortunately for us, My dad just crashed his car, um, recently, and the entire side is a huge scratch, and you basically need completely new doors for the entire side. And with him, the insurance is basically not just giving him the money, but sending him to a body shop, and they will repair it for him. And that's sort of what the insurance is then, uh, covering.

Speaker B: Well, just to ask, is this all related to what I think you once told me in our Auto One episode that we did a while back. You said that many cars go to Eastern European countries for cheap repairs and then eventually come back to Germany without a mention of the actual damage. It sounds like your dad, uh, had no problem damaging the car himself. My impression is that this is sort of a bigger problem in Germany.

Speaker A: Yeah. What could have technically happened is that, uh, the insurance pays him the money. If they would have done so, then he would get a cheap repair, let's say, in Poland, for the doors, and he gets the car back and he has the money, and then he could sell that car, um, you know, with sort of not telling about the actual damage. And that's how you can make a profit. Of course it's illegal, but, yeah, that's what we discussed in the Auto One episode. I wouldn't say anyone should do it, obviously, but I've heard that some people do, and some people actually stage accidents just so they can sort of, you know, make the little bit of extra money sort of quelling the insurance company. But anyway, COPA has now convinced some of the biggest insurance companies in Germany to switch to its service model. And since COPA has less than 10% market share and actually no real competitor in Europe, this could be a huge opportunity because you don't have a duopoly, which we'll get to in the US where basically insurers will always split the volume. In this case, all the volume and all the growth, is only going to copilot in the future.

Speaker B: Margins are already up significantly for the international business. While U.S. eBIT, which is, uh, you know, earnings before interest and taxes, just a fancy term for operating profit, it's up less than 4%, which is not particularly inspiring, while international ebit was up 50% year over year. So we're seeing an explosion in the operating profits from Copart's international business. But moving on here, how about we go ahead and continue the conversation and talk about Copart's moats?

Speaker D: I think there's a reason we liked

Speaker B: the business enough to include it in the portfolio, even if it was only there for a short while. And also regarding our decision to potentially add Copart again today back to the portfolio, I think the most important thing for us to know is whether the moat is still intact.

Speaker A: Yeah, and I would say that the first one is still intact, and I feel like it's one of the things that everyone knows about COPA right now. And, uh, it's actually Copilot's land, so it's all the yachts that they own. I've literally heard people say they've never looked at copa. They never looked at the company. They don't know anything but the fact that they own their land. Which is kind of funny, because I think, like, every COPAD pitch is initially starting with, hey, the one great thing, the one moat, is they own their land and their competitors don't. But you just can't skip that part, even though it seems repetitive, because, again, Copart operates in the US In a duopoly with iaa, that's the main competitor. And the IAA doesn't own its land. It's renting the land. And as we'll see later when we talk about the financials a bit more, that is a major factor. And there's also a limited amount of land that still can be turned into a massive salvage yard. And since Cobalt owns 250 of such locations globally, the majority of them, obviously in the US it's increasingly hard to, you know, get the same sort of expansion in terms of yards for any competitor.

Speaker B: Yeah, the good old NIMBY movement. Not in. Not in my backyard. Uh, look, last time we recorded this episode, I was not yet a homeowner, and now I am. And I can tell you I'm probably more Team NIMBY than I was just a year ago. I could imagine, really only a few things that are probably worse than getting one of those massive salvage yards anywhere near my house. And I'm sure, really, everybody feels that way.

Speaker A: Up until now, I only seen photos, but, uh, in about. What is it, a month from now, I will actually visit you. So I'll see the backyard in real life. And I can say that I think if I would have a backyard like that, I wouldn't want a salvage yard anywhere near that either. And because every homeowner thinks that way, obviously, the permits to get for those yards, it's incredibly difficult, and it's only getting more difficult in the future. And obviously, also, you can sell that land at a much better price when it's for housing or for office spaces. So there's just not really an incentive to still, you know, give a lot of permits for land that is then turned into a junkyard. So, to some extent, again, this is a competitive advantage that IEA can no longer attack, and that's true today, but it will also be even more true in 5 years time. And I should mention, and this is kind of bullish in my opinion, that Jay Adair said in his first callback as a CEO, which has happened about a month and a half ago, that Copa now has enough land and no longer needs to spend at least this half a billion dollars which they currently are spending to acquire more land. So I think that's a pretty good sign because if you just look at the financials, $500 million is quite a significant amount even for a company the size of Copart. So, for example, last year Copa generated free cash flow of 1.2 to 1.3 billion. So even if you know the spend is just cut in half, which means $250 million of savings, that's quite a meaningful chunk for Copa.

Speaker B: And the second moat is something that we've seen in many businesses that, uh, we looked at and it's just about the marketplace dynamic. They launched a, uh, website and auctions in the mid-90s and just a couple of years after ebay is when they did that. And at that point it's safe to say that most salvage yards were still running auctions in person with a guy on a clipboard probably overseeing things. And that's why Copart had a major advantage in onboarding customers. It was sort of a digital first mover.

Speaker A: I still remember when I first looked at Copart and I kind of asked myself why no one even tried copying them. Even iaa, um, which again is their main competitor, only started really getting into online auctions during the pandemic. So we're literally talking 25, almost 30 years later. And I think that's just a pretty good example of how mismanaged that company has been for a very long time. And anyway, you know, the website and also the virtual bidding system, which has sort of been this innovation that Copart had turned into a massive advantage because more bidders, and that's sort of the dynamic that you just described. More bidders mean the winning bid goes higher than, you know, if you have fewer people bidding on an auction. And higher prices mean the insurance company recovers more money, which means Copilot becomes the most profitable place for an insurer to dispose of a car, which is what we talked about earlier. And that brings in more insurers, which in turn brings in more and better inventory for Copad side. And if you can get better costs and maybe not the most wrecked ones, you will obviously also get more buyers. And that's sort of the flywheel that we're Always looking for in all the companies that we cover. And I think it's safe to say that Copad is one of the strongest flywheels that we've ever seen in all of the companies we covered, which by now is close to 100, by the way.

Speaker B: Well, and last but not least, as we think about coparts, moats and you know, the advantages that insulate them from competition, we have economies of scale to consider, especially thanks to the density of their yard network. Basically the denser the network, the shorter the distance to the next yard when you have to pick up and tow a car. And it's sort of like the Domino's model of trying to have as many locations as possible in population dense areas so that it's as close as you can possibly be. The delivery time is, you know, less than a few minutes. That sort of accessibility is an advantage.

Speaker A: Yeah, and in this case it's actually both. It's a cost advantage, but it's also about reliability. I mean, last time I think we talked about Hurricane Katrina, which was a game changer for Copart, it basically left hundreds of thousands of vehicles in salvage condition. And while salvage vehicles are usually a good thing for Copart, too much volume at once, which tends to happen in these catastrophe events, is not that good for them because you have to handle it. And that means you have to lease extra yachts, you have to hire third party services and work many overtime hours. And obviously all of that comes at a time when the costs for yachts, for third party services and so on are much higher than usual. And then in the short term, that means that, you know, all of these vehicles, they are unprofitable volume for Copart. And that's why competitors and especially IAA didn't want to go the extra mile to help back then. And Copad, they chose to absorb the losses and help as much as they could and as fast as they could. And actually I found a quote by Willis Johnson, who is the founder of Copilot, and he said that they wanted to prove they're not only the best operator, but also the most reliable partner. And I actually think if you look at how many customers Copad still has and how they stick with them, you can still see that credit that it gave to them 20 years later. Because again, the hurricane happened in 2005. This was also just a year or two after COPA shifted the entire business to online auctions. So it was also a huge test for the new system and it worked out well with tens of thousands of flood damaged cars pouring into the market. And copad's digital infrastructure allowed buyers globally to bid on cars, which, as you said before, was basically a national operation. Right now, suddenly you have the entire world internationally, you have buyers for those costs. And all of that helped bypassing the logistical bottleneck of physical auction loss. And after that, Copart established what they call a cat response team. So a catastrophe team, basically, that can help further and faster when these hurricanes come up.

Speaker B: And so this was a major part of why Copart was able to win market share for almost two decades after that. Insurers trusted Copart and knew it was not only the best place to sell volume, but also a reliable company in times of crisis. And it's really important for insurance companies to get quick help in those situations because it's exactly when they could lose a ton of customers if things are handled poorly. So the last thing you want is to wait months for your insurance company to pay you, uh, already struggling with losing your car and maybe your house. So if the service is bad in those times, insurance companies, they're probably going to lose thousands of customers. So it's a real point of vulnerability for them. But perhaps this is maybe a good moment to change the tone a bit and start talking about what has changed since our first episode. What is different now about Copart? Because there is the market narrative, that the market share dynamics have changed, and iaa, which is Copart's chief competitor, is now gaining market share. And so in our last episode, again, we talked about IAA and how it's closed the land capacity gap slowly. About five years ago, Copart still had 70% more land capacity than IA. Now that number is close to 25%.

Speaker A: And I should add, if you ask yourself, well, Daniel just said five minutes ago that the land capacity will be a major mode for Copart even in the future. Obviously, there's a difference between scaling land because you lease it, compared to scaling land or yards because you buy them. Right. Nevertheless, I got to say, apparently they did a quite good job for the last few years. But I think what the market is scared about right now is copied slowdown in the US insurance volume. So basically, the core of the business part of that can be explained, fortunately, because there were no major hurricanes this year, which is good for society. It's not that good for Copilot. I mean, talk about incentives, but even if you exclude natural disasters, the overall decline year over year would be about 3 to 5 percentage points. And while Copilot's volumes are declining, IAA's volumes have actually been up 10%. So it's not only that fewer cars are, uh, being totaled, it's also that IAA is taking share from Copa, which as you mentioned, didn't happen for, let's say 20 to 25 years. And IAA's management is actually claiming they have outperformed competition, which basically means copilot for about six quarters in a row.

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Speaker B: show notes as well.

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Speaker B: Uh, if you're interested.

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Speaker B: so what changed there that you have insurers suddenly switching over to iia? I mean, it seems like the moats we've been discussing are still largely in place. I don't think anything fundamentally has changed with Copart. And even if IAA has more yard capacity than it did in the past, there's a question of whether they can offer the same liquidity for car auctions, which is again, one of the major benefits of Copart is that they have this network effect reinforcing the entire flywheel. So yeah, what really has changed? Is there any reason in particular that insurers are Looking to choose IAA over Copart.

Speaker A: That was basically the big question for revisiting Copart, right? Has anything changed? Is there anything that I sort of missed where Copilot is vulnerable? And I got to admit, while there are problems and we'll get to them, that anything major has actually changed. And even if you listen and trust J. Ed, he was quite vocal about not thinking that IAA has meaningfully improved its operations at all, which certainly is the market narrative right now. So there's primarily one insurer that has shifted its volume to iaa, and that's Progressive. So the historical split of volumes between Copart and IA is quite uneven. So usually an insurer is not splitting 50, 50 between the two, but more like 75% of the volume goes to Copart and then 25% of the volume goes to IAA, just due to all the advantages of COPA that we have discussed earlier. So the reason why they split volume in the first place, and they're not just giving 100% of the volume to the better operator, which is Copad, is that they don't want to create a monopoly because obviously in that case, COPA would gain significant pricing power and could increase the fees for insurance companies because they couldn't shift the volume anymore. Now Progressive is going against the rest of the industry and has always leaned toward IAA. So they send 3/4 of their volume to IAA and only 1/4 to Copad. And I actually even heard that they shifted as much as 90% of their volume to IAA recently. And the problem for Copart is that Progressive has just become the biggest U.S. auto insurer, adding 2 1/2 to 3 million policies per year.

Speaker B: Well, I think it's a really interesting structure we have here where basically on the supply side, the suppliers are so strong that they're able to do a degree of tacit collusion and prevent either IAA or Copart from developing monopoly. And whether they admit it or not, something that is seemingly being done intentionally. And I think it's also good news that it's only primarily one insurer that's supporting this IAA outperformance. But the bad news is that Copart is also unlikely to win over Progressive, and Progressive is the fastest growing player in town.

Speaker A: That's a problem right now. And I think you could even go a step further and say the second order effect here is that Progressive is winning share from other insurers, obviously, which are Copart customers. So Copilot is basically losing volume, not only because, you know, Progressive tilts more to IA and more of their volume over to them, but also because that volume is coming from Copart's insurance customers. So they are losing customers to Progressive, and then Progressive shifts even more of that volume to iaa. That's sort of the double whammy that Copart is experiencing there. And maybe you ask, okay, well, what's the reason for Progressive tilting towards IA and potentially getting even more volume to them? So in the first place, what I think is that they have partnered for a very long time and IA has basically provided priority services to Progressive, so they offer them faster vehicle pickup times and better storage slot placements, and it's also willing to operate, and that's the major part at quite a low margin on the Progressive business. So it was my impression that Adair indirectly at least mentioned that COPA simply wasn't willing to offer Progressive very similar rates compared to iaa, because he didn't particularly name them. But given that they are the only lost volume, and Adair mentioned that COPPA chose not to do business with one party, that's sort of the takeaway that I had coming out of that call. And you can even see in the margin that the Progressive volume seems to come with quite low take rates because Copa's auto segment has a margin of 36%. And if you go through the filings of Ritchie Brothers, which is the owner of iaa, they say that the auto segment is somewhere in the 15 to 20% range. So significantly lower than Copartz.

Speaker B: When I hear about the profit margin difference between these two companies, I think the first thing that comes to mind is that old Bezos quote about your margin is my opportunity. But if IAA is willing to accept a lower margin, then I would very much worry as a shareholder about there being a race to the bottom on pricing between Copart and iaa. And I think, as Buffett and Munger would probably say, all it really takes is one ruthless competitor to ruin what is otherwise a wonderful business. And so right now we're only talking about Progressive. But what if other insurers started switching volume over to IAA for similar reasons? Then we have a bigger problem on our hands.

Speaker A: I think that's a good point. That's actually also the one question that immediately popped up in my head when I looked at it. But after digging into IAA's filings, it looks like the majority of the margin difference is due to depreciation relative to IAA's purchase price when Richie Brothers, which again is the parent company, bought iaa. And then you also have Stock based comp. And obviously, and this is coming back now, the leases that it pays for its land because again, they don't own it and that appears to be the majority of the margin difference. So it's not that Copart is overcharging for fees. And also, as we said earlier, most of the fees are paid for on the buyer side. So you're not necessarily overcharging the insurance companies, which is where you could lose most of your volume. So I'm not too worried that other insurers will start to choose IA or over copod because of fees or price or any of that, because again, Progressive chose IA because they also get special treatment and sort of by definition, IA can't offer that to too many customers. And you still have all the other modes that we discussed earlier. I, uh, mean they are still in place and I don't necessarily feel like they will evaporate anytime soon. So if you plan to be in business for the next 20 or 30 years, and most insurance companies do, because it's a long term business, you can still rely on Copart, since in case you didn't yet know it, they own the land. With iaa, you have the risk that they will lose land over time because permits are being revoked and land will be used in another capacity, especially when cities are getting larger and larger and you need more space for people to live. And also if you trust Adair, he again wouldn't agree with the market narrative that IAA has even become a better operator in the last couple of years. And that's very hard for me to judge from the outside because all we can do basically is just look at, hey, how many insurance companies go over from Copart to ia and it doesn't look like any of the ones that favored Copilot in the past have done that. So right now I still feel quite good. However, should that change and you see insurers actually changing sides, that would be not good for Copilot. And also you probably can see that before it's actually happening. And then it's also priced into the stock.

Speaker B: Did you say Copart owns the land?

Speaker A: I might have.

Speaker B: I haven't heard that before. Obviously. Obviously kidding. No, but it's. I, uh, would think it's very reassuring that the share loss is primarily due to one customer. If I were looking at this as a shareholder, and if you were seeing this coming from multiple customers, this might have been only the beginning of a long period in which Copart began to slowly lose market share. And even if they stay Number one, on paper, it would certainly hurt the stock because the numbers would look terrible compared to the comps. And I think what will be interesting to see is whether the insurance market actually becomes a tailwind for Copart again after being a pretty strong headwind for the last few years. And just for context as to what I'm referring to, between 2022 and 2024, sort of, uh, Covid related, auto insurance got brutally more expensive. And so average full coverage premiums in the US rose 46% over three years. So if you thought that you were going crazy imagining that vehicle insurance was much more expensive, you're not crazy. It absolutely is. And the reason for that was that carriers got hammered, repair costs exploded. After Covid, there's lots of shortages. You had prices for used cars correspondingly explode. Uh, and then the insurance companies combined ratios, which is an important term to understand, this is just the claims plus the operating expenses of the insurance business divided by the premiums that they receive. And so if you didn't understand any of that, all you need to know that is for a combined ratio, if the number is over 100, that means you're losing money on the underwriting itself. And so that's not a good thing. And in response to that, so that they could underwrite profitably and have a combined ratio below 100. At least that's the hope. You saw a lot of these companies raise rates significantly to be profitable again, but in times of high inflation and a tough economy, many people just aren't willing or able to stomach those premium increases.

Speaker A: Yeah, what you basically saw happening is that some people just drop from full coverage to liability only, which basically means if they wreck their own car, no claim gets filed and no car goes to a salvage auction. And then some raise their deductible so high that basically all of these small and medium accidents never get reported. And then some just stop insuring the car at all, even though that's technically illegal. And not only technically it is illegal, but I mean, if you look at the numbers, about a third of American drivers were now uninsured, or at least materially underinsured. If you compare that to 2023, and especially up from, you know, 2017, which is almost 10 years now, this number's up more than 10%. And CCC, which is one of the, you know, most important data companies in this field, found that the share of third party claims coming in as uninsured or underinsured motorist claims have nearly doubled in three or four years time. So hitting 16% at the end of last year. So there's just many data points showing that significantly fewer vehicles are uh, insured. And that's obviously a pretty bad data point for Copa. And one more that I have is that CCC also reckons about a quarter of repairs and our self pay, meaning that the driver just fixes it themselves rather than involving the insurer. They've even launched. I've heard that just recently a Buy now pay later product for those people, which I think whenever Buy now pay later is involved, you sort of have an idea of how big a problem got. And Copart's own data is also proving this trend. So there are more cars on the road this year than last year up to Copart, but insured costs have dropped about 4%. So I think those were enough data points to prove the point that this is not only a Copart problem. Even though IRA is growing, this is primarily a story of progressive shifting over. Generally there simply is a cyclical factor here involved with a lot fewer costs by actually on the road insured.

Speaker B: You mentioned the buy now pay later dynamic, uh, bnpl. You're making me wonder whether we should perhaps take a look at Klarna on the podcast here soon. But just, uh, staying on topic, let me ask you, are you seeing any signs of this trend that you mentioned reversing? Or is it something that will only get worse in the years to come, putting more pressure on Copart's volumes?

Speaker A: It's very difficult to say when the cycle will turn, but I think there are some signs that we might see a reversal soon. So the personal auto industry ran a 95% combined ratio last year and Progressives own personal vehicle business is actually about 8 percentage points better than the target that they publicly set in their earnings score. So you could argue that there's some ammunition to cut prices now. And by the way, regarding Progressive, I should add that I don't see the trend of them winning more and more customers as a long term threat because insurance is a highly competitive field, which is also why you see these combined ratios sooner or later go back and closer to 100. And if they outperform a couple of years, that's already pretty good performance. Usually that's very unlikely to continue. So basically I would expect that by now, even though it can still take a couple of quarters, perhaps even years, you will see a shift and perhaps these insurance rates become a tailwind for Copilot. And you should also see that Progressive is not winning more and more market share from the competition, at least not in the long run. And then as we see bigger market shifts with lower insurance rates, we might also see a shift in who wins more customers in that new environment. And I don't have a guess on which company that will be, but I'm quite confident, most likely it will be a copilot customer. Generally, though, even with first signs of a less hot insurance market, it will probably need a couple of quarters at least before you see a meaningful impact in the numbers. After all, the rates are still 50 plus percent higher than just a couple of years ago.

Speaker B: All right, then how about, uh, we alluded to it earlier, just kind of teased it, and it's the elephant in the room. But why don't we discuss, uh, the CEO transition a bit? And I got to say, it did come as a real surprise to me. Copart has this history of very long CEO, 10 years. For anybody who's a fan of the NFL, it's sort of like the Pittsburgh Steelers. They keep their coaches around for a long, long time. So it was a real shock when they fired Mike Tomlin this year. But after Willis Johnson, the founder, served as CEO for almost 30 years, you had Jay Adair, uh, take over and then run the company for 14 years. And he's somebody who had been with Copart doing other positions since 1989. So pretty long connection to Copart, uh, plenty of experience. And then you had Jeff Liao, who took over in 2022 after serving as co CEO with Jay for two years. And now just four years later, Jay Adair will take over again and Liao will step down. And as far as I know, Jeff will not even be a part of the board anymore. So he'll have something of a role like a special advisor. But I'm not really sure what that means. It might just be something to kind of placate him.

Speaker A: I wasn't quite sure what your NFL reference means, but, you know, just for the people who know the Bundesliga, the equivalent would be St. Freiberg, who also likes to have coaches on for. For a very long time. But getting to Copart CEO is. It is a bit difficult to figure out how exactly that decision has been made. I mean, Jada scheduled a call, and this is basically the call I'm referring to throughout this recording today between the Q3 earnings call and last week's Q4 earnings call. And they never did this in the three decades of being a public company. And by the way, we record this just before September 3rd. So the Q4 earnings call that I just, you know, said last week's earnings call. We actually haven't yet listened to it. And if anything massive should happen, you got to check out our free newsletter, which I will link to in the show notes, because over there we will have all the new information and updates and included, so you don't miss anything. Anyway, on that call, J. Adair basically made sure to say that he and Jeff agreed on the decision that they are still friends and they live on the same street and all of that stuff. But while that's all true, probably fact of the matter is that I don't think Jeff would have stepped down if things had gone great. And I also think that jayday and Willis Johnson thought the company has been mismanaged to some extent and Jay is the one who could turn it around. Otherwise, why don't you have both people on the call? I think that would have helped to some extent. It also sounded like J. Ed thought there's some stuff that needs fixing at the company.

Speaker B: I'd, uh, say it's pretty awkward if they actually literally live on the same street. That would be a bit of a weird vibe. But, yeah, the market dropped 8% when the news came out. And that is kind of surprising since Jay took the company from a market cap of $2 billion to $30 billion. So you would think that there should be more excitement about this veteran CEO and company builder coming back. And especially since he also said he will not be a transitionary CEO. He's planning to stay for a decade or even longer.

Speaker A: I believe it was more about the fact that this transition felt like an admission that things were not going that well at the company. And that doesn't help, obviously, when the sentiment is bad anyway. And again, when we cover the company, it was already down like 30% back when, you know, this decision has been made. Um, the stock was down even further and the sentiment was even worse. And by now, I should say the stock has recovered quite significantly. It's up about 25% from its lows. And also when the news first dropped and the market reacted, it wasn't immediately clear whether JRDR would actually stay on for the long term or basically would just, you know, be a transitional CEO, which definitely wouldn't have been a great sign because then you would need to look for a new CEO. It would even more be a sign of we didn't trust Jeff Liao, uh, and what he did with the company. Now, that's a bit different. And you know, Adair has also been quite clear again that he thinks the current narrative on Copart is just Wrong. And he pushed very hardly back against the idea that some customers are unhappy with Copart or likely to switch to competitors. And it was also during that call that he mentioned that spending on yachts is no longer necessary to at least the same extent. So I think there's a lot of stuff that we will see in the future. Wasn't too clear about what that will actually be.

Speaker B: I'm really curious, did Adair say anything more about what capital allocation will look like going forward? And the reason I ask is because one of the most important changes since the last time we looked at Copart is that they started buying back stock massively. And that could be a, uh, really positive signal, especially given their fantastic track record with doing buybacks very, very well in a way that's accretive to shareholders. And so after actually having five straight years of no buybacks, Copart has initiated the biggest buyback program that it's ever done, at least in absolute dollar terms. And so Copart bought back more than $1.6 billion of stock in the last two quarters, with more than $1.4 billion of that coming in the last quarter at what seems like fairly rock bottom prices. So basically what management is telling you is that they think that this stock is fabulously cheap.

Speaker A: We use Copart as an example for how to make buybacks, um, in many of the presentations that we had in our community and also at events. So finally, they started buying again, which probably, especially for this company, is a very good signal that the stock is most likely undervalued. And as you said, the last really meaningful buyback happened 15 years ago. So, um, for the longest time, they thought the stock likely is overvalued, at least compared to where they otherwise could invest that capital, which again, to some extent has been in yachts, for example. So I think generally, to me, Copilot is very much a story of trusting the management team, both in capital allocation and also in making the right decisions to position Copart for a future of EVs, AVs, and, you know, international expansion. And I can already spoil. We'll not talk too much about AVs today, but we talked a lot about it in our first episode, and I think our take on that hasn't really changed. I think the risks, uh, are the same, the timeline is the same. So if you want to know, know our opinion on that topic. I would say you should listen to the first episode. Speaking of which, another change in the management team is that Jen Pocock has been promoted to president of the company, and she ran Copad's UK business previously, which is the largest and the most established international market. And I think this is just another point to the importance of the international expansion. So if you ask me, where will they invest most of their money in the future, I think a significant chunk will likely go to the international business.

Speaker B: Speaking of growth opportunities for Copart, with Adair coming back, what strategic shifts should we expect now? I mean you just mentioned the international business, so I suspect that that will become an increasingly important focus for him and the management team as a whole.

Speaker A: It seems that there are three pillars that Adair wants to focus on besides a general reversion to the mean and the core insurance volume. So the first is the often discussed, as you just mentioned, international business. Again, International revenues up 14% year over year, service revenue grew especially rapidly and the international operating market, and this is sort of the most important point, increased two and a half to three percentage points last year. And that happened for quite a long while right now. So JD really pointed out that the breakthrough in Germany makes them confident that they can now use that as a blueprint to go to other markets and sort of initiate the service model there. Again, currently the revenue there's up 18% total. So if we assume it can grow 15% per uh year on average that contributes a bit under 3 percentage points to consolidated copilot growth and a bit more than that to the bottom line because of, you know, the margin expansion that we see. A second growth engine is what happens in the non insurance business. So Copart has, as we talked about last time, what is called bluecar, which is for fleet and commercial accounts, which basically provides tailored services such as asset recovery, arbitration and conditional reporting. And then they also have what's called cash4cars.com, which is just for buying cars directly from the public. And this used to be a growth driver, but it has slowed down recently. And Adair didn't give much insight into why that has been the case, but he did say that the whole car business will look, quote, very different in three to four quarters. Again it's kind of vague, but you know, at least he gives the impression of knowing what to do and how to handle growth in the future. Another thing that we also talked about last time is what they have called Purple Wave, which is an online auction site for heavy equipment, agriculture, construction vehicles, those sort of stuff. They actually acquired it a while ago and then npa, which is short for Natural Power Sport Auctions, which is doing the same. So we're talking auctions again for um, motorbikes, water sport vehicles like jet skis or something like that, and even snowmobiles and RVs and golf carts. So also, special things that I think we mentioned last time will definitely not be replaced by EVs anytime soon. And then the last growth pillar would be what they call technology services. So Copart basically operates what it calls TitleXpress and that's a product for getting the vehicle title released from the bank or the owner, then paying off the outstanding loan. And that's part of a business model that sits somewhere between the insurance and the whole car business.

Speaker B: So do you have any idea why he would say that the whole car business could look materially different in a couple of quarters? I mean, do you think they're planning an acquisition or something similar?

Speaker A: I think the honest answer would be, I'm not sure. I think there's a cyclical element to the weakness in the sector, which is mainly the supply of at least quality 3 year old lease returns is at its lowest in over a decade. Because similar to what we said earlier in terms of the pandemic, barely any new cars get built during the chip shortage that we saw in 2021 and 2022. And that should take care of itself over time. So I think that's part of it. And then I'm not sure what COPA plans are directly, but perhaps we could see a spinoff or something similar because it appears that COPA just doesn't have the same sort of moat and reputation in whole cause as it has in the core salvage business. Um, because again, in your own salvage, you are up against IA and they win on land, they win on liquidity, and they also win on the international buyer base. But then when it comes to the whole car business, that's just a completely different competitive set. So you're up against, you know, Mannheim, which is a company that we also use for some data, um, last time, and just many of these physical auction networks that are in the business for decades, that people know when they actually want to buy a good car, which is not wrecked, which is usually what you get on copa. So I don't know, I could imagine some more structural change to the company, I think some quarters ago. And a call, Jeff Liao, who was back then still CEO, was asked whether the brand would need to be a different one since again, copalt is not well known to consumers and if so, they're again primarily known for wrecked and damaged cars. And he said that perhaps they would need a sort of rebrand and that could be again, a spin off but that's just pure speculation on my end.

Speaker B: Well, so what's the deal with Purple Wave and National Power Sports Auctions NBA? Did they also get dragged down by this pretty tough market environment or are they performing well?

Speaker A: Unfortunately, COPA doesn't disclose specific numbers for them, but they did mention that they expanded the sales force for Purple Wave specifically and made sort of a strategic decision to expand the business coast to coast, prioritizing the highest GMV market. So I just assume this means the business is doing well, or at least they're believing in the future of the business. But it doesn't appear to be a core focus either, because Adair again has publicly said on the call he didn't yet spend much time on that business and would focus on the core insurance business first and then over time go to, you know, Purple Wave, NPA and those sorts of things.

Speaker B: I've been thinking about Copart a lot and there's something else I wanted to ask you about, and that is that just a couple of days ago there was a rumor spreading that Copart is perhaps interested in buying CCC Intelligent Solutions. And admittedly it's a company I know very little about, but it sounds like perhaps it could help with the, the data aspect of Copart's business. And so the deal might be related to one of these vague comments that Adair made in his July call with investors.

Speaker A: It's actually a good point. Um, it might be one of those. Although we should say that at the time of this recording at least the potential acquisition is just a rumor. Um, I think it was started because Bloomberg reported that co partisan talks with ccc. But they're not the only bidder. They are basically up against a couple of private equity firms, including GDCR and Veritas Capital. And Copad's management doesn't strike me as the sort of people who would overpay for such a deal, which they might need to if PE firms are already in competition. But, um, getting to CCC and what they actually do, I've actually indirectly mentioned them today a couple of times. I don't know if you realize that, but many of the data points as cited here came from CCC. So basically it's a company that was founded in 1980 in Chicago. And yeah, they built a software layer that sits between everyone involved after a car accident. So if you crash your car in the U.S. primarily, there's a very high chance that the estimate determining whether it gets repaired or written off is generated in CCC's software. And they serve something like 300 insurance companies, including 27 of the top 30. So basically all of the big insurance companies are, uh, their customers. And then they have something like 30k repair shops, thousands of parts suppliers, plus, you know, the car manufacturers. And they've got a huge data library of, you know, I read more than 300 million historical claims, which is what makes the damage estimates so accurate. And also that data so important for companies like Copart.

Speaker B: For example, to recap, Copart's core business is clearly dependent on insurers deciding to total cars rather than repair them. But then now you have Copart wanting to buy the company. That essentially helps insurers to decide whether a car is totaled or not.

Speaker A: Yeah, that's basically it. Yeah.

Speaker B: I gotta say, it's a bit. Sounds a little shady if you ask me. I mean, it feels like a pretty flagrant conflict of interest. I assume Copart wouldn't intentionally or blatantly influence the algorithm to push CCC to label more cars as being totaled, even though that would be good for their business, because that sounds very illegal and would destroy CCC's neutrality and credibility and thereby really its entire product. But again, it feels like something that would be, at a minimum, flagged by regulators. And call me a pessimist, but if this sort of collusion or market manipulation is not possible or not what Copart wants to achieve, my question for you is what exactly do they want to gain by buying ccc?

Speaker A: Yeah, I think I should preface that. Everything I say now is just an opinion that I sort of have formed on short notice because the news more or less just dropped and I haven't yet had a chance to actually deeply research what CCC does and what the potential synergies were if something like that deal would actually happen. But I do see many possible advantages for Copart that have nothing, or at least very little to do with changing the algorithms. I think the first potential advantage is faster cycle time, because days in the yards is one of the most important metrics for companies like Copart and IA. And those could obviously be reduced when CCC's total loss trigger directly wires cost to Copart's dispatch.

Speaker B: Maybe I was being a little too cynical. But talking about data, as you mentioned, the CCC has millions of historical claims and Copart has the actual auction outcomes for millions of those cars. And so I can see why combined that would be maybe the best business model that they could build for predicting what a damaged car will fetch. And given that higher auction returns make totaling more attractive, a more accurate model surfaces more total Losses. I do see your point on, on how it can fit into the existing Copart flywheel.

Speaker A: And even if we would assume that some of these things that I mentioned wouldn't be possible given regulatory concerns, I mean, you would still get a business that has about a billion dollars in revenue, 96% recurring subscriptions, low teen cash flow margins, which at that point they are adjusted for sbc. And I think they have some potential of seeing higher margins in the future. And it will also serve as a sort of natural hatch because it works the exact other way than Cobot. So if total loss frequency, for example, keeps climbing, COBOT wins and CCC's repair volume shrinks. But if that reverses, then you have CCC's repair business boom and Copalt supply tightening. So obviously, since Copalt would be the much larger part of the business, you know, it's a small hedge, but at least the sort of dynamic where you could see some sort of advantage from that acquisition. But of course, you need to get it at the right price for it to make any sense. And again, that might be difficult since PE firms, um, are already involved in the bidding process. And I think currently CCC's stock is down about 27, so close to 30% over the past year, and price to operating cash flow has declined from over 30 to about 10 times. And the reason it is that cheap is, well, we talk about it so often, the top line growth has slowed to around 10%. It was a faster grower before that. And obviously I don't need to tell you about it. The market is a bit nervous right now. If you haven't yet noticed about AI

Speaker B: displacing software generally might be the understatement of the year. Uh, what would make this remarkable either way is that this would be by far the biggest deal Copart has ever done. For context, the purple wave deal was in the $100 million range. And for NPA, that motorbike auction business, that was estimated to be around in that same range as well. So this would be a minimum of a $4.5 billion deal, essentially Copart's entire cash pile, although I'm sure they would raise some debt for the acquisition instead of burning all their cash. Point being, this is very substantial.

Speaker A: Yeah, historically, Copal is not the type of company that likes to raise debt, but obviously in this case they would need to, because you definitely not burn through all of your cash pile just to make an acquisition. And also referencing the Adair, uh, call one last time, he did mention on that call that if the right opportunity comes up, he would also raise debt, so he would be open to it. And, you know, it's just speculation. Uh, but perhaps he had his mind on CCC when he said that back then.

Speaker B: What was that fun? Uh, part of the episode where I think we should transition to the valuation section. And, uh, I'm actually, I'm really curious about this one because as mentioned earlier, we briefly owned Copart before. So we're both fans of the business long term. And with the price being even lower than it was last year, I wouldn't be too surprised if you ended up recommending buying it again and maybe this time for the long haul. So, uh, with all that said, I also remember that we primarily bought the business due to our perception of the company's quality. And the expected return, though just barely met the 12% target that we have or hurdle rate in your model last time. So has anything changed now? Do you feel like buying the stock at these prices is more likely to deliver a return that clears our hurdle rate?

Speaker A: Well, in this case, we clearly have to say that it was not only the price that went down, but the fundamentals were unchanged. But you actually had revenue growth come down significantly and the price adjusted. Right. So, um, it's not the same as, for example, Google last year, where the fundamentals are the same, the multiple drops, and therefore the stock gets more attractive. In this case, the stock might look more attractive because it's cheaper than a year ago if you just look at how much a share costs. But growth also slowed down. So it's a bit different than, for example, the Google situation. So I've updated the DCF model that I did, and the result is not totally convincing, I got to say. I mean, at total revenue growth of about 5 to 6%, which is low compared to the history, but it's also close to none. Right now, an eps growth of 9% thanks to some buybacks and then some slight margin expansion, which, um, you know, Copilot has seen basically throughout the last two or three decades, then the expected return would be about 10% from today's prices, assuming an exit multiple of 20, which again, if you would just look at the history, it might seem cheap, but I do think the stock has been replaced and to some extent we won't see multiples of 40 or 50x. Again, I think that's kind of unlikely. However, this time I also did a reverse dcf. And in a reverse dcf, you basically you do the DCF backward. I would say that's an easy description of what you're doing. So the idea is that you assume today's price is exactly right and then you solve for the growth rate of the business. So essentially the growth rates the market currently expects COPPA to achieve based on the price that the market values the business at today. Now given that my growth rate assumption in the normal DCF has been in the mid single digits and the results have been that the stock is more or less fairly priced stay, it shouldn't come as a major surprise at the growth rate the market currently expects for a high single digit to low double digit return based on the reverse DCF is about 5%.

Speaker B: Just to give folks a little easy summary, I think it would be that at a mid single digit growth rate over the next five years you could probably expect an 8 to 10% return complemented by buybacks and things like that. And should Copart return to double digigit top line growth, you would probably see a very compelling return in the mid to high teens on an annualized basis. And so if Copart basically stays at current growth rates, returns will be uh, probably in line with the market, nothing special, which is really what we mean when we say that a stock is fairly valued and at current growth rates

Speaker A: which are uh, close to nothing basically. Obviously you would massively underperform the market in the next couple of years. But yeah, I think that's what it currently looks like. And usually what we do is we sort of have a different likelihood assessed to a certain outcome. So you know, a bear, a base and a bull case, in this case, I think the likelihood of them actually achieving and going back to these double digit growth rates is kind of high. So I'd probably say there's you know, a 40% likelihood that happens in the base case which would be mid single digit return is also 40% and then you have a 20% likelihood of them actually staying in this 0 to 3% growth rate. So I think it likely is a pretty good opportunity for people who very much like the business, always wanted to own it and sort of feel like now is a good opportunity because you are ah, at these cyclical lows. Personally I'm not quite there yet. I don't feel like copilot is the opportunity that now stands out to me when I look at the rest of our portfolio where I immediately feel like we gotta sell one of the companies then make it happen and buy copa. Because one of my major takeaways from for example the Biggest Loser episode is that we did not do too well on businesses where the Revenue is declining, or at least the growth rate of the revenue is declining. And while I believe I do understand the reasons for copilot, we don't just saw the management raising some yellow flags with, you know, the sudden CEO change and then some more or less vague statements on what J. Adair, the new CEO will change about the business. And we sort of saw that. You know, we saw it with companies like Lulu, we saw it with PayPal, we thought to some extent, although it's different with Adobe, and just sort of stops me from really being excited about the opportunity right now. And again, if you put me on the spot. And I would say, you know, Copart will be a good investment going forward, but perhaps not in the next couple of months, but once the cycle turns. And obviously we want to invest for the long term, but if I look at our portfolio, I just don't see a company that I would want to sell right now in order to buy Copa. And we only have about 2% cash left, actually a bit less than that. So basically what we need to do is sell one company and then buy Copa for it. And that's my take. Uh, how do you see it? Is there any company you would feel like, I got to own Copa, so I got to sell company X here?

Speaker B: I don't necessarily think so. I think we're probably both a bit traumatized from our experiences looking at the biggest losers in that episode. And we'll link to that in the show notes, in case you missed it. We have definitely come to appreciate how strong of a force downward momentum can be. Stocks almost always can fall further than you think possible, even when you model out these what you think are very conservative bear cases. And so that's, that's just the reality, especially in the short term. And because the stock is falls to a point far below what anyone thought was possible, that's actually where you get the last sellers of the stock capitulating, and then the shares can finally take off, rallying again. So it is sort of an inevitable process to have this pendulum swinging in finance. There's. There's a lot of it. But I really like Copart because it's just such a perfect epitome of why you'll hear people say that you should invest in boring businesses. And unfortunately, that heuristic is too simplified. But Copart's business is very intuitive and boring in the sense that it's not going anywhere. Even though we didn't Even really discuss AVs today, which does promise to at least fundamentally change how we drive and we don't really yet know how that will affect the business. But whether human driven or automated, I'm sure that in the US in particular there are vast highway system. Cars are not going anywhere in our lifetimes and if anything, AVs could lead to a proliferation of driving and therefore business for Copart. Especially with the assumption that by baking in even more technology into cars to make them autonomous, totaling them becomes easier. So I would say that's probably my bull case on Copart. But again, with 20, uh, times earnings with decelerating growth, a CEO swap out some of this fundamental uncertainty about autonomous vehicles. I would just agree that the stock is not obviously cheap, even though the price has come down a lot, which is counterintuitive to some people. But that's just the reality of how intrinsic value works. And so if we wait, we may very well be able to pick up shares at uh, a bargain bin price and spare ourselves some of the roller coaster ride. And if we don't get the chance to do so, I'm perfectly fine with that too. I think we own a lot of other great businesses.

Speaker A: I think the last point in what it comes down to me to where uh, basically I would say is this a company that I need to own at some point and if it would be, I think it's at a great price right now to say, okay, well maybe it gets a bit cheaper, but if I definitely want to own this business, I should use the opportunity right now to buy it and then potentially buy more when it comes down further. I think I really enjoy looking into Copilot. I like the business. I like that it's one of the most multi businesses that we looked at here on the show. And yet as I said before, it doesn't excite me so much that I want to buy it necessarily. And that's not because it's a boring business. I think boring business is generally a great opportunity, but I think it needs to be cheaper. I think what you mentioned in terms of, you know, when the last person is selling stock, that's when you want to buy a company that you're not too sure of. I mean, you know, one of the things we discussed with our biggest losers is that basically when we sold PayPal, we were the last hand that sold the stock. And since then it went up, you know, 50, 60%. But um, I think that's not the case where we are currently with Copart. I think there are still enough people who are bullish on the company so that this might not be the bottom if you want to buy the company. I think it is at a cyclical low and I think it could be interesting. But for the two of us, considering the companies we already have in the intrinsic value portfolio, I think we're going to pass for now. And should the stock decline even further, I think that would be a bit of a different scenario. Also, I should say. You know I mentioned in the podcast here the stock is already up 25% so we're not at the bottom anymore where I think it would have been even more attractive than it is today. Anyway. With all of that said, let me close it for today with a quote by none other than the Copad founder, uh, Willis Johnson himself. And he said, quote, as long as we have got the land in the right place to put the cars on, we can fail. So I said it, uh, you know, oftentimes today we can't stop talking about the mode that the yachts have been, but even Willis Johnson can't stop talking about it. So we're probably right to do that. And with all that said, I hope you had a great time listening to this episode and see you all in the next one.

Speaker B: Just a quick note before you go.

Speaker D: This episode would not be possible without our friends at Fiskel AI. It is the complete stock research terminal that Daniel, Kyle and I use on every single episode with every company we dig into pulling 20 years worth of financials, digging into segment level data and grabbing quotes from the latest earnings calls. We real time institutional grade data all in one place. And now with their new AI connector you can plug that same data, financials, transcripts, fun letters, news filings and more straight into Claude chatgpt or whatever AI

Speaker B: you use for your own research.

Speaker D: If you want to try it yourself, head to Fiskel AI TIVP to get 15% off. The link is in the show notes. That's fiscal AI TIVP.

Speaker B: Thanks for listening.

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