Results for the company's fourth quarter don't come with a lot of bells and whistles, but the performance was still solid. Revenue climbed about 12%, operating income grew 10%, and net income grew about 17% over the year-ago period. It should be noted, though, that some accounting issues confound easy year-over-year comparisons. Not only was there a positive accrual that boosted year-ago numbers, but the company also recognized a cumulative change in revenue recognition -- a decision that took away more than $4 million in revenue this quarter and about a penny a share in earnings.
Looking at Copart's cash flow, there's quite a bit to like. Operating cash flow rose more than 18% from last year, and free cash flow was up nearly 38%. Cash flow like that has allowed the company to continue to acquire and/or expand facilities while keeping the balance sheet very clean indeed. What's more, you can argue that the cash flow picture is even brighter than it seems. Roughly 90% of capital expenditures for the year were targeted toward growth, meaning that Copart generates even more cash flow than the numbers would suggest.
Nevertheless, management continues to have big plans for the company's cash. Capital expenditures should increase next year to $90 million to $120 million, and Copart continues to expect to acquire more property. While I'm sure some shareholders would like to see more of that cash coming into their pockets, management has done a pretty respectable job of producing good economic returns on that reinvested cash flow.
Valuation is a little tricky. Do you give the company a free pass on the P/E because it generates a lot of stable cash flow? Do you look past a high enterprise value-to-free cash flow ratio because the FCF figure is depressed by high growth-oriented capital spending? What's more, what sort of scarcity premium is appropriate for the only publicly traded company that does what Copart does? I wish I had easy answers here, but if investing were easy, then it wouldn't be so much fun.
For more salvageable Takes, see:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).