Is valuing Copart’s no growth earnings as a perpetuity sufficiently conservative? Much of the value is implicitly after year 20 and there are valid terminal value risks to any business. For copart, this may manifest in AVs.
I think it’s overly conservative. The no growth scenario means that it distributes 100% of net income and doesn’t grow. Under that scenario 61% of the PV is in years 1 to 10.
That’s fair but the reverse DCF then indicates ~30% of the value is accounted for assuming flat earnings for 1-10 years, ~20% of the value is contingent on flat earnings from years 11 into perpetuity and ~50% of the value is dependent on future growth. So to view the stock as mispriced, one needs to believe the majority of the valuation is underpinned by both earnings growth and long dated earnings durability. In any case this was an interesting thought experiment and i appreciate your insights Adam.
Stan, I think we might be looking at two different things. My 61% above is from the no growth scenario, assuming a valuation of $13.5 billion. If you look at the growth implied in today's price, you're right, a lot is further out.
Is valuing Copart’s no growth earnings as a perpetuity sufficiently conservative? Much of the value is implicitly after year 20 and there are valid terminal value risks to any business. For copart, this may manifest in AVs.
I think it’s overly conservative. The no growth scenario means that it distributes 100% of net income and doesn’t grow. Under that scenario 61% of the PV is in years 1 to 10.
That’s fair but the reverse DCF then indicates ~30% of the value is accounted for assuming flat earnings for 1-10 years, ~20% of the value is contingent on flat earnings from years 11 into perpetuity and ~50% of the value is dependent on future growth. So to view the stock as mispriced, one needs to believe the majority of the valuation is underpinned by both earnings growth and long dated earnings durability. In any case this was an interesting thought experiment and i appreciate your insights Adam.
Stan, I think we might be looking at two different things. My 61% above is from the no growth scenario, assuming a valuation of $13.5 billion. If you look at the growth implied in today's price, you're right, a lot is further out.
good stuff.
am hoping for a simplified (updated?) public version of why ~10% discount on EV is very exciting.
(+ ceo change !)