Karooooo: Why I own an expensive stock

From South Africa to the world. Hard to spell, even harder to ignore. My rulebreaker.

I don’t like expensive stocks. My rule of thumb is that a stock should be able to double and still be cheap. But sometimes, even a P/E of 25 can be considered cheap. Consistent growth and a strong market position in a growing market are worth paying up for. At least sometimes. But when? Maybe if the company is unique.

My take in short

How many SaaS-like companies beat the Rule of 50, trade at less than P/E 25, are small caps, have no SBC, are proven market leaders expanding into ASEAN, pay a dividend, have net cash, are founder-led, are almost 100% vertically integrated, grow consistently at 15-20% or higher, and have low churn? Very few. Karooooo is the only one I have found that checks this many boxes.

I think it’s worth owning despite a clear set of risks, with culture and competition being the largest. Fast forward five years and you will (probably) see strong, profitable growth, with Asia playing a much bigger role. They differentiate themselves and have clear economies of scale.

My take, the longer version

Karooooo is the market leader in South Africa (+40% market share). It is a tech company, so things can change, but the market structure in fleet management/telematics seems likely to end up being oligopolistic with a few big players, as in South Africa today. South Africa is a mature market, but there is still a good amount of growth left. The bigger long-term growth engine, however, is ASEAN.

Their simple plan is to replicate the South African success in ASEAN. And they could do it. Not many global companies focus on this area. Most focus on the US and to a lesser extent Europe. Karooooo is also a vertically integrated low-cost provider, which is another thing that makes them different. They have a good chance of succeeding because they are focused, early, and own the customer. Growth will also come from Europe and South Africa, but ASEAN is clearly most important in the long term.

If you own the customer, and those customers are reluctant to switch and have no need to switch because competitors are neither cheaper nor better, you can simply sell more to each customer over time. They are a first mover in good markets. Growth should come from both more customers and, in the longer term, more sales to each customer. The end market is a good one, growing at 15%+, so there is room for strong long-term growth. That creates competition risks, but Karooooo has the competitive advantages, mindset, and focus to capture their fair share of growth. It isn’t only their name that sticks out. They think differently, both in terms of geographies and company structure. Not many small-cap companies can, financially, be compared to Autodesk, Microsoft, and Descartes. Continuing on that bullish tone, they are a bit like Costco for fleet management solutions.

There are obvious risks, like valuation, technological change, culture, and competition that you have to be aware of and I think a lot about. But it’s a really underfollowed stock, especially compared to its size, history, market position and numbers. It’s worth owning despite the risks. Disclaimer: I own the stock (as you could have guessed).

What they do: The Mobius fund take

Mark Mobius’ fund has bought the stock. Here is a quote from them:

Additionally, MEMF initiated a position in Karooooo (Cartrack), a high-quality, recurring-revenue telematics platform with strong structural growth drivers and company-specific execution catalysts. Industry demand is supported by fleet digitalisation to manage rising fuel, labour and maintenance costs, alongside increasing regulatory adoption across multiple regions. Cartrack’s vertically integrated model underpins high customer stickiness (c.95%), high recurring subscription quality, and attractive unit economics. Upside is driven by identifiable levers, including ARPU expansion through cross-sell of premium modules such as Cartrack Tag and AI Video, contractual price escalators in South Africa, and improving sales and installation capacity following recent investment in headcount, which should support stronger subscriber growth over time.

What they don’t do

More than once, I find Karooooo doing things that are not mainstream. They do things differently and independently, and I think that is a hallmark of Zak Calisto and/or a (good) part of the corporate culture. They are good at saying no.

• They have only a symbolic presence in the US market, mainly to track their competitors. The US is the biggest and most popular market for telematics and fleet management, but they choose carefully where to compete. They do not seem to listen to the “management consultant” playbook.

• They do not use agents. They try to own the customer. If they are active in a market, they own the whole customer value chain: products, sales, installation, and support. This is vertical integration at its best. I think their accounting package is the only outsourced software.

• They have no stock-based compensation. That is quite unusual for this type of company.

Valuation and numbers

This is not a deep value stock at all; this is more GARP. But if you actually look at the numbers, there has been consistent double-digit growth in revenue and EPS historically, and I see that continuing when I look forward. This is a “compounder”, an overused word, but this really is one. I think it has had constant growth since the start (2004) and that there is a good element of predictability here.

One important thing is that you should look at both Karooooo and their earlier listing as Cartrack (not shown in these numbers). My point is that financial success and good numbers, are apparent, over a very long history. And by the way, I think the forward numbers for revenue and EPS are too pessimistic, or simply not updated.

Seven key risks and my counterarguments

I am a reluctant owner to every stock I own, so I will focus on that. Don’t think I will ever be just positive, that’s the largest risk, not seeing any risks.

1. Valuation risk

A valuation of P/E 25 isn’t cheap, so why own? First of all, it really is P/E 25, it isn’t adjusted, with no real debt, SBC or other things to account for. But there is a valuation risk for sure. Growth must continue. Margins mustn’t collapse. The pleasant trio of long and strong history, reasonable valuation (I think it’s ok) and a positive future give me hope that the risk isn’t in fact that big. If Karooooo grows revenue and EPS by 15-20% and the valuation stays the same, you get 15-20% CAGR, that’s the oversimplified thesis.

And now some highly subjective comments on relevant peers (simply why I don’t own them instead):

• Powerfleet, I have a strong view that Karooooo is a better choice for many reasons: numbers, history, debt, insider ownership, and the markets they focus on. I am also simply not as interested in stocks or stories that can be and have been described on X as “financial engineering”, even if this is a person who owns Karooooo. They have a negative P/E.

• Samsara is too big (for me) and has a very high valuation, at least if you go by classical value measurement. P/E >300

• Ituran: Related party transactions/management compensation are too high in my view. I just cannot own. Looks interesting otherwise. P/E 22

• Opter. I think this is an example of a type of local company, that could more easily be challenged by AI and larger competitors, at least if they expand beyond the Nordics. Still, this is somewhat liked and talked about in Sweden. Not sure how much room there will be for local players in a more consolidated fleet management world. P/E 22

A word of caution: All these could be great investments, perhaps much better than Karooooo, but they are just not for me. Still, it makes sense to mention my big question marks and objections here.

2. South Africa-risk

70% of income is from South Africa. Many may stop there and instinctively shy away from this company. But then you miss something. You have to think about three very important factors.

1. The revenue/income history is very consistent. This is as “safe” as it gets when it comes to South African income, the revenue is non-cyclical, and highly predictable (they won’t go away or shrink in bad times, shown by history).

2. South Africa is not going in the wrong direction, actually it may be going in the opposite direction due to two important changes. The political situation (ANC+DA rules) is a clear improvement from Zuma times. And the electric utility situation is significantly improved in recent years. Load shedding isn’t affecting businesses and citizens that much. But the perception of South Africa isn’t always updated (people think of a messy political situation and even messier electricity situation). There are problems yes, but a country in free fall? No, instead green shoots. But the situation should be monitored.

3. The country weights and corresponding country/currency risks will be materially different in 3-5 years for Karooooo. Today it’s 70% South Africa, in 3-5 years it might be <50% due to ASEAN growth. There might be a perception shift that will happen, sooner or later, that this is a global company with an African base/roots. South Africa will be less important over time.

Maybe I should add some additional comments about why South Africa is both natural and a good place for Karooooo. If you read about Hidden Champions, there are often clusters of companies from one region. This industry has strong roots in South Africa, partly because of theft and security problems. The competitor MiX Telematics also comes from South Africa and is now a part of Powerfleet. For those interested in Hidden Champions, the South African background is a good sign.

3. Overall competition

Competition is real and natural. Software can change quickly. Old and new competitors can create price pressure. There may even be free or cheap solutions that might be “good enough”, although I think these are too simple and lack the data. ERP systems could maybe broaden their offering and offer into bundled solutions (not sure about that, maybe a long-term threat though).

Car manufacturers could try to push their own solutions, but they are naturally more limited to their own vehicles and ecosystems. Karooooo seems like a better solution to me structurally since companies often have different types and brands of vehicles. Mercedes, Volvo, or Toyota will naturally be limited to its own brand while Karooooo is brand-agnostic. It is also not only about cars. It is about transport, goods, workforce, logistics, safety, and efficiency. The most important competitive question is whether Karooooo’s advantages are durable enough and competition might come from new angles. This is something that I monitor closely. If something happens that will put pressure on Karooooo, and similar companies, I think USA is the market to look at. If Karooooo’s services aren’t needed (for whatever reason) in the US (the most modern market), I will get sceptical.

As long as churn doesn’t rise and margin doesn’t fall, I think Karooooo is holding up well, and those are the most important measures I follow. They are the clear leader in South Africa with about 40% market share. I don’t see any large AI-risk, since this is a bit of hardware and software combined. Data is a key to success.

4. Not unique products? No pricing power?

You can, in a slightly simplified view, think of Karooooo as the Costco of fleet management services. Scale advantages increase with more customers and are shared with customers (by not raising prices). I think the products and offerings over time are quite similar to other multinationals. What makes Karooooo unique is the business model, vertical integration, owning the customer etc. And some products are in fact unique, the Cartrack-tag for instance. It must also be harder for smaller players to offer complete solutions/broad offerings. What I mean is that the tier 1 companies, the multinationals, share similar offerings over time.

Also, and this is important: The data could be a “moat” that could give them an edge, at least to smaller, new entrants. Given their experience and data pool it should be hard for smaller players to build and adapt at the same rate.

They have not raised prices for a long time (about 15 years). That could be a smart move, a land-grab strategy to win customers in new markets. It could also be a sign that they completely lack pricing power. My interpretation, perhaps too positively skewed, is that this is the right strategy and that there may be some untapped pricing power. In theory at least there are some switching costs and a first mover advantage. If you use and like Karooooo, they might become mission critical. Certainly, the numbers would look even better with 3% to 5% annual price increases. But the question is how much churn would rise then, and what is normal/expected in the market they operate in.

5. Family involvement

There is some family involvement (“nepotism”?) going on. This article in The Edge touches indirectly on this.

For my part, this is a family company, and involving your children is not wrong at all. I see them as extraordinarily experienced for their age and the company is literally in their DNA. They have grown up discussing it, they know the company inside out. In the bigger picture, this is just something to accept in family companies. Still, this could be a reason that some funds avoid the company, I am not sure.

6. Corporate culture – my yellow flag

Glassdoor reviews are not great and bad corporate culture is one of the largest risks in my view. Karooooo (a small sample) has 3.0 of 5 and Cartrack (a larger sample) has 2.4 of 5. Mix has 3.5, Samsara has 4.0. Looking at the reviews, you often hear comments about bad management, and toxic culture. I think there is a real culture risk here. It might be that Zak, or the culture he created, almost might be a bit despotic, and there are certainly high demands and a bit of rotation of people. They say themselves that it’s a startup culture.

Glassdoor summary (for Cartrack)

• Management & leadership – Many reviews highlight poor management practices, including micromanagement and a lack of support, leading to a toxic environment where employees feel disposable.

• Work environment & culture – There’s a recurring theme of a disorganized and stressful workplace, with high turnover rates and a culture that prioritizes profits over employee well-being.

• Career & growth – While some employees appreciate the commission structure and learning opportunities, many express frustration over limited recognition and unclear paths for advancement.

• Work-life balance – Employees report a lack of work-life balance, with pressures to meet strict targets and minimal flexibility, which can lead to burnout.

What to do with this? Maybe it really is toxic. Maybe employees are pushed too hard. But if the work environment is crappy and people are not happy, cracks should really have begun to show after 20 years. If you look at the numbers, both as Cartrack (from 2014), and as Karooooo (from 2021), they are excellent and consistent. Zak has built this from scratch since 2004. It is a good creation (in terms of what is delivered to the shareholders, and 5% churn is not high). This company is a world leader starting from nothing. One explanation for the bad reviews is that it’s simply not a company for everyone. Not for all investors, not for all fund managers, and not for all employees.

But it is too much to just ignore. In the future, even more rapid change could require a good culture. I don’t like these risks if true and representative and I think they should do more to retain (good) employees. My point: The retention rate for customers is 95% and that’s a strong number, it’s strange if churn for employees is neglected.

Being fined by authorities is also something that isn’t a good sign culture-wise: I see this as an isolated event; I haven’t seen this before, and the sums are not large, but more of this and I will be skeptical to their business practices. Combined with the Glassdoor reviews and corporate culture risks, this is a yellow flag, with a hint of orange for me. This is something I think about and don’t like.

The most important reasons why I own anyway:

• The bad reviews are mostly concentrated in sales, if I got that right. It doesn’t have to be representative of the “core” of the company. And people change jobs more often in that department.

• The numbers for the company tell a completely different story than the Glassdoor reviews, and this hasn’t had an effect so far, so there is no “construction flaw” in the company since the history is long and good.

• The reviews haven’t gone from good to bad, they were already bad years ago (strangely enough this is a positive). A sudden drop would have been worse. This is maybe just how the company is run.

• You get a feeling that standards are high and that the culture just does not suit everyone.

But this point, combined with competition, is what I follow most closely. Especially worse reviews from here, combined with signs of stalling growth and/or any new fines would make me sell.

7. Corporate governance related to the owner

There have been some related-party transactions historically. I do not see them as even a yellow flag, based on the amounts and context. Some good funds own the company, but not all South African investors seem to like him. Why? There seems to be a love-or-hate element around Zak Calisto himself, and he has in some sense moved his capital to Singapore. I speculate, even if I probably shouldn’t, that not everyone likes that. Maybe some employee dissatisfaction could be one part of the story as well (but I am speculating again).

For me, five things are some strong counterarguments to the character and governance risks related to a large controlling owner like Zak:

1. There is no stock-based compensation.

2. There has been no criticism that I am aware of regarding the JSE/Nasdaq listing (Cartrack to Karooooo). He did not enrich himself or hurt minority shareholders as far as I know.

3. In recent years, he sold stock. A lot, actually. Yet he has not raised prices for 15 years. A normal “corporate” guy might have raised prices to accelerate short-term growth and the share price before selling. He did not. This speaks of character and integrity. I guess he does what he believes is right for the company.

4. There is a real legacy and large family ownership. He wouldn’t hurt the company by bad behavior since he would hurt his legacy, and his family’s wealth. The children being involved is a good thing in this context.

5. Good South African and global funds do own the company. Desert Lion, Saltlight, even Mobius, Ashmore and Holberg. That shows me that the problems and risks I highlight are a matter of taste, not that this is a company that should be avoided. My rule of thumb is that you never as an international investor should buy stocks that are hated and avoided locally. If these funds start selling, that should have “signal value” for me, and I might join them.

A great resource: Interview!

I can highly recommend this interview. I will give some nuggets and quotes. It’s just what I found most valuable even if the whole interview really is worth listening to. Note: I hope I got the quotes right, and please listen for yourself. Also note that they are a few years old, but you get a good understanding of the business!

General good quotes

These are some quotes that show some uniqueness in the company.

• Our value proposition is really the strong ROI that we have. People often ask, what is the ROI? It’s a very complex thing to actually determine. What we normally find, the investment of the customer upfront is the monthly fee, and the real benefits the customer get is in the first month, maybe a bit more in the second month, and in the third month the benefits are just keeping going on. The ROI is over 1000% for most customers.

• We are vertically integrated and everything sits on one single platform, even the way we run our business our internal systems are also one platform. Our only third party software is our accounting package.

• All the customers that are using our technology, we own the customer, the customer is not own by a third party.

• If you look at our operating margins they are well above any of our peers both in South Africa and abroad and that gives us a lot of pricing power should the market become competitive in terms of pricing.

• Africa (outside ZA) is not a real focus area for us but it supports our south African customers that are doing logistics up into Africa or going on tourism.

• When we went to Europe we were the first company to be on cloud compared to our peers.

Some Q & A, and my own take on that

Q: South African market, growth has remained robust in an economy that is basically going sideways to slightly backwards. You dominate the south African market, what would you consider that the TAM is, the size of the opportunity still available to grow in, in South African market?

A: The statistics are a little bit blurry, anything between 10 and 12,5 million vehicles. We have got on our platform in south Africa just over 1,4 million vehicles. We estimate there is about 3,5 million vehicles in south Africa installed, it could be as high as 4 million vehicles (me: that’s 35-40% market share). We believe that we are very much focused on Green market opportunity although we take business from our peers. And I certainly believe that we could triple our business in south Africa, given that we only got let’s say 11 or 12,5% of the total addressable market in south Africa. So to eventually land in 33% or 35% I don’t think that’s unrealistic. And we havn’t really got into a very competitive mode where we start to trying to get our competitors customers. Because we certainly got the margins to be able to do that and we certainly got the technology to do it as well. I certainly believe it wouldn’t be too say we can triple our business in south Africa.

My own take: Since South Africa is about 70% of sales, this is hugely important. And ASEAN growth isn’t just a project to get growth while South Africa has run out of steam. No: there is a lot of growth left in South Africa (there is just even more growth in Asia). Also, South Africa today could be what Asia will look like in the future, just at the next stage, when the market is more saturated. This tells me that the Asian growth story is very long term.

Q: How would then your commercial offering then differ to some of your competitors, you know is it kind of fighting for market share with a relatively similar offering, is there something particularly unique to Karooooo cause obviously a lot of it is just entering a new market you get to win market share and that ‘s how you can get a very high growth rate for a long time or is there some kind of specific very neat little competitive advantage that you think you have in some of those markets?

A: We certainly have got niche offerings in our platform and our platform is very, very comprehensive. I would say just every month we either improving on things or adding new features, adding new stack on our platform, it’s forever evolving. Having said that, in the industry that we’re in, even if you’ve got an edge over your competitor in terms of technology, I would say that in Europe and in South Africa all of our competitors are continuously looking at what we are doing. So even if you got the edge, within 6 months they are going to have it. They are going to copy you or do something slightly different, so it really is just about continuously innovating than saying I’ve got this feature, this differentiates us.

My own take: This is key to understanding the business. It’s both a good, and a bad thing. The large companies in this space aren’t that unique in their offerings. So they have no “moat” then? I think the large ones have that. In South Africa, a mature market, there still are only a few large players (Karooooo is the largest). And being a low-cost provider, as Karooooo is, is the right way to go. The key is being a low-cost provider with scale advantages, and to be first or early, and focus on a limited number of key markets and own the customer!

Q: This is more relevant to the south African market, do you get a discount on insurance if you have one of the Karooooo trackers?

A: The insurance companies are paying much lower ARPU:s and the unit economics don’t work for us. So our model is very different. Most of our consumer customers come directly to us, we’ve got a very strong brand, we’ve got a very strong value proposition, our service is well known and the insurance companies that do send the business to us are for their high risk vehicles, so the mass market they give it to our peers and the high risk vehicles they give it to us.

My own take: They really choose where to play. Not growth for the sake of growth. They avoid markets that have bad unit economics and are selective. That’s good!

Q: Why are you not operating in South America and Mexico, there’s also large markets, consumer and commercial, maybe just talk to us about the expansion outside of south Africa, I know you mentioned in the remarks with your slides, the move to Singapore to tap the kind of South East Asia, why didn’t you go for South America? (huge populations in both regions) What was more attractive about the south east asia opportunity?

A: What I’ve learned in doing business it’s the south African mindset is very unique, it’s very different to anywhere else in the world. Probably the most similar mindset to south African mindset are the Europeans. I believe very long term, Asia will be the fast growing GDP per capita and it will have a huge emerging market that will become first world markets over the next 25 years so Having said that, If we one day needed to consolidate the business we’d obviously find somebody that’s very strong in Latin America and in North America and consolidate with them. But I don’t think you can go to these markets and run them on remote control.

My own take: Asia for the win: that is a worldview I share. I also like that quote about not running on remote control. Again, they choose where to play.

More reading and info?

Want some more info about Karooooo? Please see their latest presentation and the long interview mentioned above (Unlock the Stock). If you are in a hurry, I recommend this short recent YouTube video as a quick overview as a start. If you like to listen, here is a recent podcast.

Final thoughts

Karooooo is not risk-free. It is founder-led, South Africa-heavy today, culturally demanding, and not cheap for a deep value investor. There is technology risk, competition risk, corporate culture risk, and key-person risk around Zak Calisto.

But it is also rare. A founder-led, SaaS-like company with net cash, no SBC, strong growth, high margins, a dividend, vertical integration, customer ownership, and a large ASEAN opportunity is not something you find every day. It may look expensive at first glance, but if Karooooo keeps compounding, keeps expanding in ASEAN, and keeps owning the customer, today’s valuation may not be expensive at all.

For me, Karooooo is a rulebreaker: not cheap enough for my deep-value soul, but too good to ignore. What is your opinion? Under what circumstances would you own a company at a P/E of 25? Are other SaaS companies more tempting? And what is your take on bad Glassdoor reviews?