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Karooooo reported robust revenue growth, however, the earnings fell short of expectations today.
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Even with some margin pressure, the Cartrack division continues to surpass the rule of 60.
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The recent drop in stock price presents a potential buying opportunity for this lesser-known global telematics frontrunner.
Shares of Karooooo Limited (NASDAQ: KARO) saw a decline of 16.5% on Wednesday.
Karooooo is a prominent provider in telematics and data solutions for truck fleets in South Africa, Southeast Asia, and Europe, boasting a strong and profitable subscription model.
During its fiscal second quarter of 2026, the company showcased significant revenue growth, but this seemed to come at a cost to its profit margins.
The stock had enjoyed significant gains in recent years, so the earnings disappointments led to a substantial negative reaction in the market today.
For the fiscal second quarter, Karooooo reported a 21% increase in revenue, while adjusted non-GAAP earnings per share rose only 13% to ZAR 8.28 per share (approximately $0.48 in USD).
The earnings shortfall can be partially attributed to withholding taxes on dividends from Cartrack and Karooooo Logistics paid back to the parent company, in addition to a decline in the gross margin, which decreased by three percentage points compared to the previous year, settling at 72% and impacting the bottom line.
Nonetheless, while the profit miss resulted in a market sell-off, Karooooo achieved a reacceleration of its top-line growth. The annualized recurring revenue growth reached 20% in the second quarter, indicative of an upward trajectory from fiscal 2025’s 17%, fiscal 2024’s 15%, and fiscal 2023’s 13% growth rates.
This suggests that Karooooo may be aggressively pursuing growth, possibly lowering prices to augment overall top-line expansion and capture market share. The management has emphasized potential growth opportunities not just in South Africa but particularly in the less saturated Southeast Asian market, which may lead them to prioritize longer-term growth over immediate profitability.
Despite today’s downturn, Karooooo remains a compelling business. Utilizing the software rule of 40, a benchmark for identifying attractive software companies by aggregating revenue growth and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins to surpass 40, Karooooo significantly exceeds this threshold, with its main Cartrack segment surpassing the rule of 60, producing 20% growth and 46% EBITDA margins.
