Karooooo Ltd. delivers a mobility application for vehicle fleet owners in Asia-Pacific, Africa, the Middle East, Europe and the United States. The software-as-a-service operates under several brand names, including Cartrack, Carzuka and LiveVision among others. In the twelve months ending February 2024, the Company recorded ZAR225.42 million (US$6.12 million) in total sales, providing ZAR55.88 million (US$2.92 million) in operating income. Importantly, operating cash flow in the same twelve months was ZAR51.19 million (US$27.1 million), representing a sales-to-cash conversion rate of 23%.
We believe efficiency at the operating level contributes to strong profits and in turn returns on investments. Return on invested capital was 22.4% in the last reported twelve months, which compares quite favorably to cost of capital at an estimated 7.7%. Thus, excess return on investment is approximately 15%. Internally generated cash is the principal source of capital for the Company, which has a debt-to-equity ratio of 0.16.
Analysts are predicting strong growth in earnings over the next twelve months. The Company delivered a strong upside surprise in the last quarter ending February 2024, and we expect similar outperformance in the coming periods. We believe it is more likely than not that the stock price will move higher with each quarter report as traders respond to unexpected performance. Eventually, analysts may catch up with the Company’s potential and reflect that in their earnings models. That might reduce future surprises, but will still gain investor attention as the consensus estimate is elevated.
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