Key Points
Karooooo's financial report included profits that fell short of expectations.
However, management made a shrewd move that will pay off in the long run.
Shares of Karooooo (NASDAQ:KARO) tumbled out of the gate on Tuesday, falling as much as 9%. As of 11:54 a.m. ET, the stock was still down 2.1%.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
The catalyst that sent the Internet of Things (IoT) and logistics specialist lower was the company's financial report -- but things aren't what they seem.
Image source: Getty Images.
Hidden in the disclosure
For its fiscal 2027 second quarter (ended Aug. 31), Karooooo reported revenue that climbed 22% year over year to $101.8 million. The results were driven higher by its Cartrack fleet telematics segment, with revenue up 20% to a record $90 million, while revenue from its Karooooo logistics segment rose 36% to $11.8 million. Despite record operating profits, the bottom line fell short of investor expectations, with EPS rising 18% to $0.58 (more on that in a minute).
Other metrics were generally robust. Subscription revenue of $88 million climbed 31%, fueled by record net subscriber additions, which drove total subscribers up 18% to 2.9 million. This helped drive Cartrack's annual recurring revenue (ARR) up 30% to $354 million, with an ARR retention rate of 95%.
Despite generally robust growth, the stock slumped in early trading, as Wall Street had projected higher profits. Buried in its accompanying regulatory filing, however, management explained that it made the strategic decision to stock up on vehicle-tracking devices and memory chips in anticipation of rising prices. While this decision weighed on the bottom line in the short term, Karooooo will ultimately save money on these components, fueling higher profits overall.
Fair-weather investors fled the stock on the news, but at 25 times forward earnings, Karooooo stock is priced to move.
Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Karooooo. The Motley Fool has a disclosure policy.