Volume growth at Copart, which manages salvage vehicle auctions, continues to be weak due to more under-and-uninsured auto drivers and shifting market share amongst insurance carriers. While recent performance has been frustrating, Copart’s earnings have grown at a healthy clip over the past few years, and its competitive position remains strong. The company also announced that Executive Chairman Jay Adair, who previously served as CEO for many years, will return to the role. We view this as a positive development. Jay was instrumental in building Copart over the past 30+ years, and his substantial ownership stake keeps him strongly aligned with shareholders.

We initiated a new position in Copart, a car auction technology platform that has shown impressive growth metrics, including a ten-year sales growth of 17.4% and profit growth of 19.1%. Despite a recent share price decline, we believe Copart operates in a duopoly with a strong business model, primarily serving insurance companies. While there are concerns about the long-term growth rate of automobile accidents due to autonomous driving, we see the potential for increased total loss classifications as a positive driver for future revenue. The current share price presents a rare opportunity to invest in a high-quality business at a discount.

We initiated a new position in Copart, a car auction platform that has shown impressive growth metrics, including a ten-year sales growth of 17.4% and profit growth of 19.1%. Despite a recent share price decline, we believe this high-quality business operates in a duopoly with negligible debt and strong returns on invested capital. The market's concerns about insurance trends are seen as cyclical rather than structural, presenting a rare opportunity to invest at a discount. We expect the long-term upward trend in total loss classifications to continue, balancing the risks associated with declining accident rates due to autonomous driving.

Copart (CPRT) is a long-term holding that is trading at valuation levels not seen in over a decade. While growth has slowed, we believe this is largely due to cyclical and short-term headwinds that will ultimately be resolved. The company has a strong competitive position, and despite recent performance challenges, its earnings have grown at a healthy clip over the past few years. The return of Executive Chairman Jay Adair to the CEO role is viewed positively, as he has been instrumental in building Copart over the past 30+ years.

At Copart, CEO Jeff Liaw stepped down on June 29, and the stock fell on the news. However, Jay Adair, a founding member and the company's CEO from 2010 to 2024, has returned as sole CEO for at least the next decade. The company sits on $4.2 billion of cash and no debt after $1.6 billion of buybacks. The lost insurance volume to IAA is traced to a single account, and the franchise remains intact. I have real confidence in Jay at the helm.

Copa Holdings was mentioned as a notable contributor to the Fund's performance, but no specific argument or directional stance was provided regarding its future prospects or valuation.

We believe the quality of the portfolio’s underlying businesses is as high as ever. In the rare instances where our companies are not performing well fundamentally (LVMH, Copart) we are building positions under what we see as temporary overhangs. This indicates our confidence in Copart's long-term potential despite current challenges, as we expect our portfolio holdings to compound free cash flow per share at a teens rate, as they collectively did in 2025.

Copart operates an auction platform, primarily to serve US auto insurers disposing of damaged vehicles that have been deemed too expensive to repair. Its share price declined 25% in 2025 until it was sold from the portfolio in July. The company has a single competitor of note: IAA Inc. After many years of losing share to Copart, IAA has in the last two years improved its operating performance and regained some market share. This caused us to question Copart’s competitive strengths, as well as its long-term growth and earnings prospects.

Despite Copart's stock underperforming, the company demonstrated strong fundamentals with a +12% growth in gross profit dollars and a +24% increase in earnings per share. The recent decline in unit volume from U.S. insurance customers is seen as a temporary issue, exacerbated by competition from a major duopoly rival. The manager believes that Copart's investments in auction liquidity will help normalize market share losses. Additionally, with nearly $5 billion in net cash, the company is positioned to enhance returns through share buybacks, making its valuation increasingly attractive.

Copart is highlighted as a successful small-cap company that has grown significantly over the years, demonstrating its potential for disruption and market share growth. The manager notes that Copart, along with other small caps, has transitioned from being valued at hundreds of millions to tens of billions, showcasing its strong performance compared to larger companies that have struggled. This valuation disconnect presents an attractive outlook for small caps like Copart, which are currently trading at cheaper prices and offer both growth potential and downside protection.