I was in high school, riding shotgun in my friend Bobby's new ride. He'd had his license for all of two days and was granted his first driving experience independent of his parents. He made a dynamic left turn and happened to overlook an oncoming Mack truck. While we emerged from the wreckage unscathed, Bobby's sled did not. The Mack truck steamrolled the back end of his car, leaving large portions of his trunk scattered across the highway.
Similar incidents provide big business for vehicle salvage companies. Copart
Last Wednesday, Copart reported a monster fourth quarter, in which its quarterly profit rose 26% and salvage same-store sales climbed 21%. Earnings for the period ended July 31 increased to $31.6 million, or $0.34 per share, compared with $25 million, or $0.27 per share, during the same period last year. This beat analysts' expectations of $0.29 per share. Revenue for the quarter rose 24% to $137.2 million from $110.6 million a year ago. These numbers sent the stock to a 52-week high of $30.39, and it's up 20% year to date.
On Friday, however, Robert W. Baird downgraded Copart to neutral from an outperform rating, citing concerns that revenue growth could slow as the company works down the rest of its backlog from hurricanes Katrina and Rita. There was some profit-taking as the stock closed down $0.81.
Despite the downgrade, I still believe the stock's selling at a good buy-in price. The company attributed only 10% of its same-store sales growth to hurricane work, and it did not entirely view that work to be a blessing for business. The hurricane work has presented unprecedented obstacles unlikely to be seen on such a large scale in the near future. Copart said operating results were hurt by incremental costs of about $2.1 million related to the hurricanes. Copart also said that while the majority of these vehicles will be disposed of in the next two quarters, processing the hurricane vehicles may continue to hurt gross and operating margin percentages.
While this does not appear positive on the surface, it's simply a short-term challenge that the company won't have six months from now. These expectations are also priced into the stock and largely mitigated by Copart's growth. The company is reasonably valued and continues to expand its business. It carries a forward P/E of 17.78, in line with that of competitor ADESA
Fools who are able to get in while Copart finishes its hurricane work should benefit over the long run. In an industry where companies experience year-over-year quarterly revenue growth of 10%, Copart's quarterly revenue growth of 22% should leave its shareholders well-positioned for a smooth ride.
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