In 2017, Hurricane Harvey dumped as much as 60 inches of rain in Southeast Texas, flooding homes, schools, businesses, and autos. The Insurance Council of Texas estimated at least $4.75 billion was paid out to insured owners who collectively lost more than 250,000 private passenger and commercial vehicles in the flooding. And this is just one event. In 2005, Hurricane Katrina and two other storms damaged some 571,000 vehicles along the Gulf Coast and in Florida. 

Flooding is the biggest cause of vehicle damage reported to insurers after storms like these, according to Roger Morris, spokesman for the National Insurance Crime Bureau. Add to this the number of wrecked and totaled vehicles that insurers declare as a total loss each year, and the numbers become overwhelming.

Cars in a traffic jam

Image source: Getty Images

What to do with all of these unusable vehicles? Once the water recedes, the insurance pays out, or the wrecker tows them away, California-based Copart, Inc. (NASDAQ:CPRT) is the next link in the chain.

Recycling: It's not just for plastics

Copart helps insurance and rental car companies, local municipalities, financial institutions, and charities sell over two million salvage vehicles over the internet through online car auctions and vehicle remarketing services. Dismantlers, body shops, salvage buyers, dealers, and individual consumers are able to buy these vehicles from Copart's 200 locations in 11 countries, including over 170 across 47 U.S. states and another eight in Canada. Copart's network enables the sale of these totaled vehicles in foreign markets where they can be repaired at lower costs due to less regulatory requirements.

Impervious to most market cycles

Because demand for this specific sort of recycling is continuous, the salvage business is not significantly impacted by economic cycles. Natural disasters will continue their random paths of destruction and auto makers continue to add costly technology-enabled features even in their baseline models. The latter fact means a higher number of cars are more likely to be totaled than repaired. And even as car manufacturers include more safety features on board, their efforts are often circumvented by distracted drivers using their smartphones, who account for 25% of all car crashes.

Copart's market is both international and domestic. The company states that approximately 20% of the salvage vehicles it acquires are sold to non-US buyers who are more likely to purchase higher-priced cars – a figure it has documented over the past 12 years of growing its business internationally. 

Demand + tech = solid company growth

In order to meet this ever-growing demand from car buyers and sellers, Copart says it's "doubling down" on storage capacity expansion, and it has continued to iterate on its technology-based model since launching as a members-only website in 1996. Copart launched online bidding in the industry back in 1998, pioneered online vehicle images in 1999, and introduced real-time virtual bidding in 2001. 

The company's financials demonstrate an increased demand for its vehicle remarketing services and the higher average selling prices it's been able to get from those international online bidders. Total revenue continues to climb, exceeding $2 billion in July of this year, which represents a near doubling since 2015. And Copart is keeping more of what it makes, compared to others in its industry. Copart's trailing twelve month (TTM) gross profit margin is 45.58%, which is 57.2% higher than the sector median of 29%. Its year over year revenue growth of 13.1%, healthy $646.7 million in cash from operations, and 23.23% return on total assets (all TTM figures) underscore the profitability of this solid company.

Copart's stock price has increased 55.7% ($28.45) over the past 12 months and 400.7% ($63.67) over the past five years – far better returns than the S&P 500's respective 17.9% and 50.95% increases over those same periods. Copart's future looks solid as well. Analysts expect an annual earnings per share (EPS) growth rate of almost 12% in 2020. 

Next expected earnings date for this profitable growth company is November 19, 2019.