Is the recent performance of Copart, Inc. (NASDAQ:CPRT) related to its attractive financial outlook?


Copart Inc (NASDAQ:CPRT) stock is up 4.9% over the past three months. Given its impressive performance, we decided to study the company’s key financial indicators, as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Copart’s ROE in this article.

Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In other words, it reveals the company’s success in turning shareholders’ investments into profits.

See our latest analysis for Copart

How to calculate return on equity?

The return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for Copart is:

25% = US$1.1 billion ÷ US$4.4 billion (based on trailing 12 months to April 2022).

The “yield” is the profit of the last twelve months. This means that for every dollar of shareholders’ equity, the company generated $0.25 in profit.

Why is ROE important for earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

Copart earnings growth and 25% ROE

First, we recognize that Copart has a significantly high ROE. Second, even when compared to the industry average of 11%, the company’s ROE is quite impressive. So the substantial net income growth of 23% observed by Copart over the past five years is not too surprising.

Then, comparing with industry net income growth, we found that Copart’s growth is quite high compared to the average industry growth of 6.0% over the same period, which is great to see.

NasdaqGS:CPRT Past Earnings Growth August 28, 2022

The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. What is the CPRT worth today? The intrinsic value infographic in our free research report helps visualize whether the CPRT is currently being mispriced by the market.

Does Copart effectively reinvest its earnings?

Copart does not pay any dividends to its shareholders, which means that the company has reinvested all of its profits back into the business. This is probably what explains the strong earnings growth discussed above.


Overall, we’re pretty happy with Copart’s performance. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. That said, the company’s earnings growth is expected to slow, as expected in current analyst estimates. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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