US$44.44 - That's What Analysts Think Karooooo Ltd. (NASDAQ:KARO) Is Worth After These Results

Simply Wall St · 10/17 11:36

Karooooo Ltd. (NASDAQ:KARO) came out with its second-quarter results last week, and we wanted to see how the business is performing and what industry forecasters think of the company following this report. Results were roughly in line with estimates, with revenues of R1.1b and statutory earnings per share of R6.85. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

See our latest analysis for Karooooo

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NasdaqCM:KARO Earnings and Revenue Growth October 17th 2024

Taking into account the latest results, the consensus forecast from Karooooo's three analysts is for revenues of R4.53b in 2025. This reflects a satisfactory 3.9% improvement in revenue compared to the last 12 months. Statutory earnings per share are predicted to increase 2.0% to R27.75. Before this earnings report, the analysts had been forecasting revenues of R4.50b and earnings per share (EPS) of R28.70 in 2025. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a minor downgrade to their earnings per share forecasts.

Althoughthe analysts have revised their earnings forecasts for next year, they've also lifted the consensus price target 7.5% to US$44.44, suggesting the revised estimates are not indicative of a weaker long-term future for the business. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Karooooo analyst has a price target of US$45.94 per share, while the most pessimistic values it at US$42.94. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Karooooo is an easy business to forecast or the the analysts are all using similar assumptions.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that Karooooo's revenue growth is expected to slow, with the forecast 8.0% annualised growth rate until the end of 2025 being well below the historical 19% p.a. growth over the last three years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 12% per year. Factoring in the forecast slowdown in growth, it seems obvious that Karooooo is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply they will perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Karooooo analysts - going out to 2027, and you can see them free on our platform here.

Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Karooooo that you should be aware of.