Let's Follow Insiders Into This Vehicle Marketing Stock

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Copart (NASDAQ: CPRT) has recently experienced a sharp fall in the previous month, dropping from $38.10 per share to $31.90 per share. To take advantage of the recent weakness in its share price, the company’s senior VP of strategic growth acquired 14,400 shares for around $31 - $32 per share, with the total transaction worth around $455,300. Should investors follow John Lindle, the company’s insider, into the company? Let’s take a closer look.

Consistent growth with conservative balance sheet

Copart, incorporated in 1982, is considered the leader in online auctions and vehicle marketing services in three main countries, the U.S., the U.K., and Canada. Copart generated revenue from the fees of sales transactions, transportation and other remarketing services. In 2012, around 82% of its sales, $757.3 million, derived from service revenue, while vehicle sales were only around $167 million in 2012.

What I like about Copart is its consistent growth in both top line and bottom line in the past four years. Its revenue increased from $743 million in 2009 to $924 million in 2012, whereas net income rose from $141 million to $182 million during the same period. The 4-year net income growth was 6.6%, while EPS experienced a higher growth of nearly 13.8%. The higher growth in EPS was due to continuous share buybacks, reducing its share count from 170 million to 130 million. Moreover, I also like Copart due to its consistent positive cash flow generation. In the past twelve months, its operating cash flow was $216 million and free cash flow came in at $75 million.

Copart employed quite a conservative capital structure. As of April 2013, it had $724 million in equity, $139 million in cash and only $390 million in both long and short-term debt and capital lease obligations. Copart is trading at around $31.90 per share, with a total market cap of $4 billion. The market values Copart at as high as 12.3 times its trailing EBITDA.

Is KAR and CarMax better buys?

Compared to its peers, including KAR Auction Services (NYSE: KAR) and CarMax (NYSE: KMX), Copart does not seem to be expensive at all. KAR, at $23.40 per share, is worth more than $3.2 billion on the market. The market values KAR a bit lower than Copart, at around 11.85 times its trailing EBITDA. KAR is one of the leading providers of Vehicle Auction Services in North America, with around 54% of its revenue, more than $1 billion, coming from ADESA, the Whole Car Auctions business. The Salvage Vehicle Auctions segment ranked second, with $716 million in sales, while the Vehicle Floorplan Financing contributed the least, with $194 million in 2012 revenue. What might interest investors is its diverse customer base. The company reported that it had an average relationship of more than 10 years with its top ten vehicle suppliers, and the biggest customer accounted for only 2% of its sales in 2012. For the full year 2013, the company expects to generate around $1.15 to $1.20 adjusted net income per share, along with adjusted EBITDA of $535 - $540 million.

CarMax has the highest valuation among the three companies. CarMax is trading at $48.20 per share, with a total market cap of around $10.8 billion. The market values CarMax quite expensively at 19.5 times its trailing EBITDA. Recently, the company reported impressive results for fiscal year 2013. Its operating revenue experienced a year-over-year growth of 10% to $10.96 billion, along with the 5% growth in comparable store sales. Net income came in at $434.3 million, 5% higher than net earnings last year. CarMax has already planned for expansion in the next year, intending to open 10 to 15 new superstores in different states including Georgia, Maryland, Pennsylvania and Missouri in each of the next two fiscal years. In fiscal 2014, estimated capital expenditures should stay around $300 million.

Among the three companies, KAR might be the favorite stock for income investors with its juicy dividend yield at 3.3%, while both CarMax and Copart have not paid any dividends yet. However, in terms of profitability, Copart is the most outstanding with the highest operating margin at 29.4%. KAR ranked second with 13.4% operating margin, whereas the operating margin of CarMax is the lowest, at 6.5%.

My Foolish take

Indeed, Copart had quite a reasonable valuation, strong balance sheet, good growth and recent insider buying. It is also the most profitable company among its peers and it has generated consistent positive cash flow. Consequently, Copart could be a decent stock for investors at its current price.

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Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends CarMax and Copart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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