Stock Analysis

Karat Packaging Inc. Beat Analyst Estimates: See What The Consensus Is Forecasting For This Year

NasdaqGS:KRT
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A week ago, Karat Packaging Inc. (NASDAQ:KRT) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 3.9% to hit US$105m. Karat Packaging also reported a statutory profit of US$0.34, which was an impressive 24% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Karat Packaging after the latest results.

View our latest analysis for Karat Packaging

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NasdaqGS:KRT Earnings and Revenue Growth May 16th 2022

After the latest results, the three analysts covering Karat Packaging are now predicting revenues of US$442.8m in 2022. If met, this would reflect a solid 12% improvement in sales compared to the last 12 months. Per-share earnings are expected to increase 8.4% to US$1.41. In the lead-up to this report, the analysts had been modelling revenues of US$430.7m and earnings per share (EPS) of US$1.36 in 2022. It looks like there's been a modest increase in sentiment following the latest results, withthe analysts becoming a bit more optimistic in their predictions for both revenues and earnings.

Althoughthe analysts have upgraded their earnings estimates, there was no change to the consensus price target of US$31.00, suggesting that the forecast performance does not have a long term impact on the company's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Karat Packaging, with the most bullish analyst valuing it at US$33.00 and the most bearish at US$29.00 per share. This is a very narrow spread of estimates, implying either that Karat Packaging is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that Karat Packaging's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 17% growth on an annualised basis. This is compared to a historical growth rate of 24% over the past three years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 6.1% annually. Even after the forecast slowdown in growth, it seems obvious that Karat Packaging is also expected to grow faster than the wider industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Karat Packaging's earnings potential next year. Pleasantly, they also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that in mind, we wouldn't be too quick to come to a conclusion on Karat Packaging. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Karat Packaging analysts - going out to 2024, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Karat Packaging that you need to be mindful of.

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Find out whether Karat Packaging is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.