Copart is the largest provider of online salvage vehicle auctions in the world. They operate in an industry that is typically recession resistant as accidents continue and salvage rates increase when used car values drop in recessionary environments, offsetting a decrease in miles driven. They benefit from a “not-in-my-backyard” principle by owning the most salvage yards, which also reduces their cost structure relative to competition. They have a dominant position in the United States, strong positions in Canada and the UK, and huge reinvestment opportunities as they grow operations in Germany, Ireland, Brazil, Spain, the United Arab Emirates, and Finland. Most importantly, as a result of its virtually unrivaled global network of vehicle sellers, primarily insurance companies selling totaled vehicles but also the general public and entities such as banks and fleet operators, and vehicle buyers such as dismantlers, rebuilders, used vehicle dealers, and the general public, we believe Copart is very difficult to disrupt and in a great position to benefit from growth in global vehicle auction activity. Moreover, because network value rises exponentially as new participants join a network, we believe Copart is likely to maintain or even increase its pricing power over time.
To read a more detailed description on CPRT as discussed in a prior investment letter, click here.
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