Karooooo Ltd. (NASDAQ: KARO ) dominates fleet management in South Africa with sticky subscription revenue and peer-leading margins. Operating profit has more than doubled since 2019, powered by scale and a high fixed-cost base. Yet behind this growth, returnsBSc (Eng), MBA. Self-taught value investor with 2 decades of investing experience. Blogger at i4value.asia. The blog is on value investing through case studies where I analyze and value listed companies in the ASEAN and US regions. I have an exceptional ...

Group 1 - Karooooo Ltd. (KARO) has reached a significant support level and is considered a good pick for investors from a technical perspective, having recently broken through the 50-day moving average, indicating a short-term bullish trend [1] - The 50-day simple moving average is a key indicator for traders and analysts to determine support or resistance levels, and KARO shares have increased by 6.4% over the past four weeks, currently holding a Zacks Rank 2 (Buy) [2] - Positive earnings estimate revisions strengthen the bullish case for KARO, with 2 upward revisions compared to none lower for the current fiscal year, and the consensus estimate has also increased [3] Group 2 - Investors are encouraged to consider adding KARO to their watchlist due to the important technical indicator and the positive movement in earnings estimate revisions [3]

Company Overview - Karooooo, founded by Zak Calisto, operates in the connected vehicle industry, providing a software platform for fleet management, logistics, and safety [4][5]. - The company started with a focus on vehicle tracking and has evolved into a comprehensive telematics solution [7]. Business Model and Revenue - Approximately 50% of Karooooo's business in South Africa is commercial, while the other 50% is consumer-based [7]. - South Africa accounts for 70% of the company's subscription revenue, with the remaining 30% generated from international markets [7]. Financial Performance - Karooooo has a strong financial profile, with a return on unlevered net tangible assets (RONTA) of about 35%, exceeding Warren Buffett's preferred threshold of 25% [9]. - The company aims for a "rule of 60," combining growth and EBITDA margins, indicating a healthy and profitable business model [10][11]. Leadership and Management Style - Zak Calisto emphasizes the importance of building strong teams and maintaining a culture that supports sustainable growth [12]. - The leadership style focuses on high-level vision while ensuring that critical details affecting business health are monitored [12]. Technological Integration - The company utilizes AI for predictive analysis and risk mitigation, particularly in banking and fraud prevention [14]. - Karooooo is adapting to advancements in autonomous driving, recognizing the need for management systems even as driver roles evolve [16]. Market Position and Growth Potential - The company sees significant growth opportunities in both existing and new markets, with a potential for rapid expansion if execution aligns with market demand [13]. - Karooooo's approach to capital allocation is disciplined, with a focus on sustainable growth rather than aggressive expansion without sufficient cash flow [13].

Core Viewpoint - Growth investors are increasingly focused on stocks with above-average financial growth, which can lead to solid returns, but identifying such stocks can be challenging due to inherent volatility and risks [1] Group 1: Company Overview - Karooooo Ltd. (KARO) is identified as a promising growth stock, supported by a favorable Growth Score and a top Zacks Rank [2] - The company has a historical EPS growth rate of 13.5%, with projected EPS growth of 18.6% this year, surpassing the industry average of 18.3% [5] Group 2: Key Growth Metrics - The asset utilization ratio for Karooooo is 0.97, indicating that the company generates $0.97 in sales for every dollar in assets, significantly higher than the industry average of 0.58 [6] - Sales for Karooooo are expected to grow by 23% this year, compared to the industry average of 5.7% [7] Group 3: Earnings Estimate Revisions - There has been a positive trend in earnings estimate revisions for Karooooo, with the Zacks Consensus Estimate for the current year increasing by 3.9% over the past month [9] - The combination of a Growth Score of A and a Zacks Rank 1 positions Karooooo favorably for potential outperformance in the market [11]

Financial Data and Key Metrics Changes - In Q1 FY26, annual recurring revenue (ARR) increased 18% to 4,574 million ZAR and 24% to $254 million on a U.S. Dollar basis [5] - Total revenue for Q1 reached 1,277 million ZAR, an increase of 18%, with subscription revenue also increasing by 18% to 1,141 million ZAR [11][29] - Earnings per share rose 19% to 8.55 ZAR [15][34] - The company maintained a strong balance sheet with net cash and cash equivalents of 1,103 million ZAR [16] Business Line Data and Key Metrics Changes - Kartrak's subscription revenue grew 19% to 1,138 million ZAR, with an operating profit margin of 30% [11][30] - Karoo Logistics generated delivery as a service revenue of 121 million ZAR, an increase of 20% [10][22] - The total subscriber base increased by 17% to approximately 2,400,000 [11][32] Market Data and Key Metrics Changes - South Africa's subscription revenue growth accelerated to 16%, contributing 70% of total subscription revenue [17] - Southeast Asia and the Middle East saw subscription revenue growth accelerate to 30%, with a subscriber base of approximately 290,000 [20] - European subscription revenue growth accelerated to 22%, now comprising 10% of total subscription revenue [21] Company Strategy and Development Direction - The company aims to strengthen its leadership position in South Africa while expanding its distribution footprint in Asia and Europe [23][24] - Capital allocation strategy prioritizes organic growth and innovation, with a disciplined approach to M&A [25][26] - The company is focused on increasing ARPU in South Africa and expanding its sales headcount by 70% by February 2026 [20][24] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory for both consumer and commercial customers in South Africa [41] - The company does not foresee significant impacts from U.S. tariffs on its Southeast Asia operations, attributing growth to local market engagement [41] - Management reaffirmed the FY26 growth outlook, emphasizing the importance of strategic investments in sales and marketing [36] Other Important Information - The company reported a healthy subscription gross margin of 74% and a customer retention rate of 95% [16] - Free cash flow generation resumed, benefiting from disciplined working capital management [34] - The company plans to return surplus capital to shareholders primarily through dividends [26] Q&A Session Summary Question: Subscriber growth trajectory in South Africa - Management noted strong traction in both commercial and consumer customer growth, expecting this to continue throughout the year [41] Question: Impact of U.S. tariffs on Southeast Asia subscriber growth - Management believes that local economic growth is driving adoption rather than U.S. tariffs [41] Question: Cross-selling initiatives and their impact on ARR growth - Management aims for a 6% increase in ARPU this year, with good progress noted in Q1 [42] Question: Expansion strategy in Southeast Asia versus Africa - Management indicated that Southeast Asia presents a larger market opportunity compared to Africa [44] Question: Mix between subscriber growth and cross-selling initiatives - Management reported a 2% uplift from cross-selling, with expectations for this to increase by Q4 [45] Question: Hiring capacity plans and their impact on subscription growth - Management expects a correlation between increased sales staff and subscriber growth, targeting a 28% increase in Asia [48] Question: Contract performance rollout in South Africa - Management highlighted significant progress with the contract tag, viewing it as a game changer [53] Question: Effective tax rate and its outlook - Management noted benefits from profitable entities that previously had tax losses [54]

Financial Data and Key Metrics Changes - In Q1 FY26, total revenue increased by 18% to 1,277 million ZAR, with subscription revenue also rising by 18% to 1,141 million ZAR [11][28] - Annual recurring revenue (ARR) grew by 18% to 4,574 million ZAR, and on a U.S. Dollar basis, it increased by 24% to $254 million [5][13] - Earnings per share (EPS) rose by 19% to 8.55 ZAR [15][33] - The company maintained a strong balance sheet with net cash and cash equivalents of 1,103 million ZAR [16][34] Business Line Data and Key Metrics Changes - Kartrak, the operations management SaaS platform, generated subscription revenue of 1,100 million ZAR, an increase of 19% [7][29] - Karoo Logistics, the delivery as a service offering, reported revenue of 121 million ZAR, up 20% [10][22] - Kartrak's operating profit margin remained stable at 30% despite increased investments in sales capacity [11][15] Market Data and Key Metrics Changes - South Africa's subscription revenue growth accelerated to 16%, contributing 70% of total subscription revenue [17][21] - Southeast Asia and the Middle East saw subscriber growth accelerate to 22%, with subscription revenue growth reaching 30% [18][19] - European subscription revenue growth accelerated to 22%, now accounting for 10% of total subscription revenue [20][21] Company Strategy and Development Direction - The company aims to strengthen its leadership position in South Africa while expanding its distribution footprint in Asia and Europe [23][24] - A disciplined capital allocation strategy prioritizes organic growth and innovation, with a focus on returning capital to shareholders when growth opportunities are limited [25][26] - The company is committed to maintaining a strong financial profile while pursuing profitable growth opportunities in underpenetrated markets [4][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory for both consumer and commercial customers in South Africa [41] - The company does not foresee significant impacts from U.S. tariffs on its Southeast Asia operations, attributing growth to local market dynamics [41] - Management reaffirmed the FY26 growth outlook, emphasizing the importance of strategic investments in sales and marketing [35][36] Other Important Information - The company reported a healthy subscription gross margin of 74% and a customer retention rate of 95% [16][28] - Free cash flow generation resumed, benefiting from disciplined working capital management [33][34] Q&A Session Summary Question: Subscriber growth trajectory in South Africa - Management noted strong traction in both commercial and consumer customer growth, expecting this trend to continue [41] Question: Impact of U.S. tariffs on Southeast Asia subscriber growth - Management believes that local economic growth is driving subscriber growth, not U.S. tariffs [41] Question: Cross-selling initiatives and their impact on ARR and ARPU - Management aims for a 6% increase in ARPU this year, with good progress made in Q1 [43] Question: Expansion strategy in Southeast Asia versus Africa - Management indicated that the market opportunity in Southeast Asia is larger than in Africa, driving the expansion strategy [44] Question: Mix between subscriber growth and cross-selling initiatives - Management reported a 2% uplift from cross-selling, with expectations for further increases as initiatives gain momentum [45] Question: Hiring capacity plans and their impact on subscription growth - Management expects a correlation between increased sales staff and subscriber growth, targeting a 28% increase in subscriber growth with a 70% increase in sales staff [47] Question: Contract performance rollout in South Africa - Management highlighted significant progress with the contract tag, viewing it as a game changer in the marketplace [52]

Financial Highlights - Karooooo's Annual Recurring Revenue (ARR) increased by 18% year-over-year to ZAR 4,574 million[21,44] - In USD terms, ARR growth accelerated to 24% year-over-year reaching USD 254 million[21,44] - Cartrack subscription revenue grew by 19% year-over-year in ZAR[29,45] - Cartrack subscription revenue grew by 24% year-over-year in USD[29,45] - Karooooo's Earnings Per Share (EPS) increased by 19% year-over-year to ZAR 855[33,46] Subscriber Growth - Cartrack subscribers increased by 17% year-over-year reaching approximately 24 million[19,21,45] - Asia subscriber growth accelerated to 22% year-over-year[45,51] - Net subscriber additions of 84K were a record for Q1[45,72] Regional Performance - South Africa's Cartrack subscriber growth was 16% year-over-year[50] - Southeast Asia's Cartrack subscriber growth was 22% year-over-year[51] - Europe's Cartrack subscriber growth was 20% year-over-year[52] Karooooo Logistics (Delivery-as-a-Service) - Karooooo Logistics delivered revenue of ZAR 121 million in Q1 2026, a 20% year-over-year increase[29,54,55] - Karooooo Logistics delivered an 8% operating profit margin in Q1 2026[29,54]

Group 1: Earnings Performance - Karooooo Ltd. reported quarterly earnings of $0.47 per share, exceeding the Zacks Consensus Estimate of $0.45 per share, and up from $0.39 per share a year ago, representing an earnings surprise of +4.44% [1] - Over the last four quarters, the company has surpassed consensus EPS estimates four times [2] - The company posted revenues of $69.85 million for the quarter ended May 2025, which missed the Zacks Consensus Estimate by 2.26%, compared to year-ago revenues of $58.29 million [2] Group 2: Stock Performance and Outlook - Karooooo shares have increased approximately 12.6% since the beginning of the year, outperforming the S&P 500's gain of 7.2% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.45 on revenues of $73.4 million, and for the current fiscal year, it is $1.87 on revenues of $301.03 million [7] Group 3: Industry Context - The Internet - Software industry, to which Karooooo belongs, is currently ranked in the top 32% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - The Zacks Rank for Karooooo is currently 3 (Hold), suggesting that the shares are expected to perform in line with the market in the near future [6]

Core Insights - Karooooo (KARO) is set to report its first-quarter fiscal 2026 results on July 22, with revenue expectations of $71.47 million, reflecting a 22.6% year-over-year increase, and earnings estimated at 45 cents per share, indicating a 15.38% rise from the previous year [1][2]. Group 1: Subscriber Growth and Product Adoption - Strong subscriber momentum from Cartrack in the fourth quarter of fiscal 2025 is anticipated to positively impact both revenue and earnings in the first quarter of fiscal 2026, with net additions of 79,009 subscribers, a 25% increase year-over-year [3]. - The successful launch and uptake of Cartrack-Tag are expected to contribute positively to revenue, with a focus on selling this product and AI video capabilities to existing customers [4]. Group 2: Regional Expansion and Sales Strategy - A planned 70% increase in sales headcount in Southeast Asia is expected to enhance revenue growth, with the region showing a 31% constant currency subscription revenue growth in the previous quarter [5]. - Southeast Asia is identified as a key growth market, being the second-largest contributor to group revenue [5]. Group 3: Operational Efficiency and Financial Metrics - Operational leverage is projected to support earnings growth, with Cartrack reporting a 34% operating profit margin and a 76% subscription gross margin in the previous quarter [6]. - Karooooo Logistics is expected to contribute to top-line growth, building on a 33% year-over-year revenue increase in fiscal 2025, driven by demand for capital-light e-commerce and logistics operations [7]. Group 4: Earnings Expectations - The combination of a positive Earnings ESP of +7.46% and a Zacks Rank of 3 suggests a favorable outlook for KARO's earnings performance [10].

Core Viewpoint - Karooooo Ltd. (KARO) is anticipated to report a year-over-year increase in earnings driven by higher revenues in its upcoming earnings report for the quarter ended May 2025 [1] Earnings Expectations - The consensus estimate for Karooooo's quarterly earnings is $0.45 per share, reflecting a year-over-year increase of 15.4% [3] - Expected revenues are projected to be $71.47 million, which is a 22.6% increase from the same quarter last year [3] Estimate Revisions - The consensus EPS estimate has been revised 4.21% higher in the last 30 days, indicating a positive reassessment by analysts [4] - The Most Accurate Estimate for Karooooo is higher than the Zacks Consensus Estimate, resulting in an Earnings ESP of +7.46% [12] Historical Performance - In the last reported quarter, Karooooo exceeded the expected earnings of $0.37 per share by delivering $0.44, achieving a surprise of +18.92% [13] - Over the past four quarters, the company has consistently beaten consensus EPS estimates [14] Predictive Indicators - A positive Earnings ESP combined with a Zacks Rank of 1 suggests a high likelihood of Karooooo beating the consensus EPS estimate [12][10] - Stocks with a positive Earnings ESP and a solid Zacks Rank have historically produced positive surprises nearly 70% of the time [10]