Over the past year, shares of Copart, Inc. (CPRT) have gained 49%. The stock has been helped by big institutional demand for the shares. This buying started in July 2019. I actually wrote about this signal back in September. You can read that post here. Shares have jumped 4% since then. The recent pullback is an opportunity to go shopping, in my opinion.
A great way to uncover tomorrow's winners is to look for great stocks seeing big buy activity, and Copart could be just the opportunity. The stock has been gaining over the past year. Smart money managers are always looking to bet on the next outlier stocks – the best in class. For Mapsignals, it's not enough to look at technicals and fundamentals alone. The key lies in the demand for shares … the big money.
I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall. For 2020, Copart stock has been swept up in the global stock rout – i.e., big selling. But looking back a few months, you can see that the stock was a massive outperformer.
For Mapsignals, when we look for an entry on a leading stock, we look for big money signals. Just to show you what our big money activity signals look like, have a look at all of the big money (unusual institutional) signals Copart stock has made over the past year. Focusing on February, you can see a red signal, which lines up with the overall market. We believe that this is forced selling by money managers to reduce risk.
Just in 2020, Copart has logged two big money buy signals and one red signal, indicative of buying in the shares prior to the market pullback (see chart above). This shows that traders are likely thinking that the shares are poised to head higher. These data points suggest that big money appetite for the stock is high.
If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Based on history, the odds suggest that Copart stock is poised for gains. The big money is always looking for an opportunity to buy shares on the cheap. It's all about playing the odds by not fighting the trend.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by big money signals (outsized institutional activity). We are looking for the big money bets because big money moves stocks. By studying these data points, we can make an educated guess as to which stocks institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When we decide on a long candidate, we consider leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. The following are a few positives for Copart shares:
- One-year outperformance vs. market: +36.54% vs. SPDR S&P 500 ETF Trust (SPY)
- One-year outperformance vs. discretionary ETF: +39.61% vs. Consumer Discretionary Select Sector SPDR Fund (XLY)
- Recent big money buy signals
Now, we take it a step further and score the best stocks showing big money trading activity. Below you can see that Copart has recently shown top-rated signals for Mapsignals. The following chart is since 2018. The main takeaway is how the signals tend to precede a lift in the share price. We think the current pullback will be short lived.
On top of a long-term technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Copart's earnings growth is very strong, and its revenue growth rate is impressive. We believe that the company is slated for more growth ahead.
- Three-year revenue growth rate: +17.31%
- Three-year earnings growth rate: +30.96%
Copart shares have pulled back with the market. The company has a history of institutional demand. We like the long-term story of the stock. The narrative for Copart and other high-quality auto-part stocks is one of growth in the coming years.
We are always on the lookout for great companies pressing higher year after year. The best companies in a group tend to outperform over the long run. All of this points to a long-term opportunity for the stock.
The Bottom Line
Copart is seeing near-term selling pressure alongside the market. Our big money indicator is signaling that we should take notice. Shares could be positioned for a bounce soon. Given the historical growth in share price and growing fundamentals, this stock could be worth a spot in a growth-oriented portfolio.
Disclosure: The author holds no position in Copart stock at the time of publication.