KARO

We rate Karooooo Ltd. (KARO) as a Buy with a composite score of 66.7/100 at a current price of $46.86. The stock scores above average across the majority of our six quantitative factors and ranks #206 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in quality (92th percentile) and value (88th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (33th percentile) and stability (63th percentile) tempers our overall conviction. We assign a Narrow Moat rating (63/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Karooooo Ltd. holds an above-average position (#23 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 66.7/100 places it at rank #206 in our full 7,333-stock universe. At $1.4B in market capitalization, Karooooo Ltd. is a small-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 14% and favorable momentum (67th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 70% (+9.9pp vs sector) narrow to operating margins of 31% (+27.4pp vs sector) and net margins of 20.3%, yielding a gross-to-net conversion rate of 29%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $46.86, Karooooo Ltd. appears undervalued relative to its fundamentals. Our value factor score of 88/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at EV/EBITDA of 4.6x (discounted to peers), P/B of 8.2x, P/S of 1.4x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Low uncertainty rating to Karooooo Ltd.. The company exhibits strong financial stability with a beta of 0.99, conservative leverage (10% D/E), and a stability factor in the 63th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 63th percentile with quality at the 92th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 70% provide a buffer against cost pressures; conservative leverage (10% D/E) limits balance sheet risk; above-average stability (63th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Karooooo Ltd.'s capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 117.1%, disciplined leverage (10% D/E), a 2.39% dividend yield. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — Karooooo Ltd. meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 2.39% dividend yield, and the combination of 73.8% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, Karooooo Ltd. receives a Buy rating with a composite score of 66.7/100 (rank #206 of 7,333). Our quantitative framework assigns a Narrow Moat (63/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 68/100.

Our analysis supports a constructive view on Karooooo Ltd.. The combination of identifiable competitive advantages, low uncertainty, and exemplary capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.