TIP845: Copart Stock (CPRT): Is Copart Now a Buy? w/ Daniel Mahncke & Shawn O'Malley

SPEAKER_1 (0:00)

You're listening to TIP.

Daniel Mahncke (0:03)

Welcome back to The Investor's Podcast, episode 845 And Shawn, the last stock I pitched to you was Palantir, and that came as a surprise to many, but I was definitely surprised by the quality of the company, at least by the part that we could understand, and it wasn't too technical for us.

Shawn O'Malley (0:21)

I've got to admit a little secret to you, Daniel. I still don't really know what ontology means, if we're being completely honest.

Daniel Mahncke (0:28)

Well, actually the weekend after our recording, I listened to a 5-hour-long German podcast, which also covered police work in Germany, and they mentioned Palantir, and that was quite fascinating.

Shawn O'Malley (0:39)

Daniel, 5 hours? Come on, I thought our breakdowns were getting a little lengthier. I'm guessing that you raced through it at like 2x speed.

Daniel Mahncke (0:48)

2.85. I actually gotta say, I love that YouTube feature where you can manually set the speed instead of having these 0.5 jumps. And I'm not even sure whether that's part of YouTube Premium or just normal YouTube experience. But anyway, the podcast was about a police officer who talked about how it took him months to come up with a sort of mind map of a criminal organization and how if he would have been allowed to use Palantir, it would have simply taken him a couple of minutes.

That felt like a very tangible example of how just going through the databases of all of these agencies can simplify the day to day job of police officers, but also different security agencies. And that's basically the mind map that we talked about, the ontology that Palantir uses. But that was just my off topic tangent on Palantir. So let's go to today's company, which is Copart.

Shawn O'Malley (1:40)

Away we go.

SPEAKER_1 (1:45)

Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities.

We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. 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. Now for your hosts, Shawn O'Malley and Daniel Mahncke.

Shawn O'Malley (2:31)

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 percent, 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 to invest it 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.

Daniel Mahncke (3:10)

I think it's always random luck whenever we make buy or sell decisions now. But jokes aside, I mean, Copart 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 Copart's slowed down from just mid teens to basically no growth at all.

Shawn O'Malley (4:12)

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