Karooooo's Q3 Performance Reinforces Growth Trajectory and BUY Thesis

What happened

Karooooo Ltd. reported robust Q3 results, achieving its 10th consecutive EPS beat with revenue up 22% and subscriber growth of 16% year-over-year, extending the momentum from Q2 FY26 where subscription revenue and ARR grew by 20%. The asset-light model continues to drive operating leverage, leading to a 14% increase in operating profit and a 28% rise in adjusted free cash flow in Q3, aligning with the FY26 guidance reaffirmed in prior filings. Cartrack remains the core EBITDA contributor, while the logistics segment is emerging as a potential hidden asset, though its growth remains modest relative to the subscription business. These results suggest sustained execution against key watch items such as ARR growth and margin maintenance, as highlighted in the DeepValue report. However, persistent internal control weaknesses and competitive risks underscore the need for continued vigilance despite the positive operational trends.

Implication

Investors should view the consistent EPS beats and growth metrics as validation of management's execution, reinforcing the investment case for a profitable SaaS operator with mid-20s margins. The improvement in operating leverage and free cash flow enhances financial resilience, supporting potential capital returns or reinvestment in growth initiatives. While the logistics segment offers an underappreciated upside, its current modest contribution means the primary focus remains on Cartrack's subscription engine for near-term value. Key risks, such as internal control remediation and competitive intensity, require close monitoring, as any slippage could offset the positive momentum. Overall, if ARR growth and margin targets are maintained, the stock may experience multiple expansion, but a cautious stance is warranted until control weaknesses are resolved.

Thesis delta

The Q3 results confirm and strengthen the existing BUY thesis from the DeepValue report, with key performance indicators like EPS beats and subscriber growth exceeding historical trends and aligning with guidance. No fundamental shift is warranted, as execution appears solid, but the thesis remains dependent on continued momentum and successful remediation of internal control weaknesses to de-risk the investment.