At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
As Foolish mouths watered at the prospects of savory fowl Wednesday, Milwaukee-based investment banker R.W. Baird was busy roasting a turkey of its own. Taking a good hard look at auto salvage specialist and Motley Fool Stock Advisor recommendation Copart (NASDAQ:CPRT), the banker declared this growth story done.

Baird warns us that falling scrap prices and a climbing dollar bode ill for Copart. Pointing to pessimistic guidance from (privately held) competitor Adesa as supporting its view, Baird proceeded to pull its "outperform" rating on Copart, and downgraded the stock to "neutral." For the record, I agree. In fact, I'll go Baird one better -- I think Copart's a sell.

Let's go to the tape
Before I tell you why, let's take a quick look at Baird's record, with a caveat: You might not like what you see there. Turns out, Baird isn't a super-analytical greasemonkey. It doesn't make a lot of recommendations in the auto industry, or even in Big Steel, whence so many of Copart's scrapped vehicles head for recycling. And what it does recommend doesn't always work out so well:


Baird Said:

CAPS Says:

Baird's Pick Beating (Lagging) S&P by:

Johnson Controls  (NYSE:JCI)



2 points

Snap-On (NYSE:SNA)



6 points

Harley-Davidson (NYSE:HOG)



(30 points)

Overall, the analyst is just getting by with a 47% record for accuracy. That's good enough to place Baird in the 70th percentile of investors tracked by CAPS, but don't go looking for Baird's mom to put its report card on the family fridge.

By the numbers
Fortunately, you don't have to be an auto industry expert, or even much of a math whiz, to see why Baird might have some doubts about Copart's valuation. While the stock carries only a 15 P/E, and while that looks modest relative to analysts' expected 17% long-term growth rate for the stock, a quick peek at the cash flow statement suffices to tell you that Copart is not quite as profitable as it seems.

What we find on that document is that although Copart reported nearly $157 million in "earnings" under GAAP over the past 12 months, it's free cash flow for the same period came to slightly less than $81 million. That works out to a price-to-free cash flow ratio of 27 -- expensive even for a near-monopolist like Copart. And believe it or not, this is far from a short-term phenomenon. Fact is, Copart's free cash flow has lagged its reported profit under GAAP for the past 11 years.

Plus, let's not forget the big picture here. Remember that Copart's business depends mightily on the supply of wrecked cars available for salvage. While I don't expect a tough economy to noticeably lower the frequency at which drivers total their rides, it will reduce the number of rides on the road. Perhaps you haven't heard, but times are tough for Ford (NYSE:F) and General Motors (NYSE:GM) today. Even mighty Toyota (NYSE:TM) is having difficulty putting rubber on the road. Simply put, automakers aren't selling as many cars as they used to, and even the heaviest leadfoot is going to have a hard time wrecking a car he hasn't the means to replace -- with the result that Copart's car-wreck supply chain may decline in the near term.

Foolish takeaway
Between anemic free cash flow, near-term revenue risk, and yes, Baird's concerns over scrap metal prices and dollar exchange rates, too, I'm afraid Copart lacks a sufficient margin of safety to justify buying it today. What's more -- and my fellow Fools at Motley Fool Stock Advisor may well disagree with me on this point -- I see no reason to follow Baird's advice and hold this overvalued stock at all. To this Fool's eye, Copart's a sell, plain and simple. 

Snap-on is a Motley Fool Income Investor selection. Copart is a Stock Advisor pick. The Fool owns shares of Copart.

Fool contributor Rich Smith does not own shares of any companies named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 903 out of more than 120,000 members. The Fool has a disclosure policy.