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While Karat Packaging Inc. (NASDAQ:KRT) might not have the largest market cap around , it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$33.46 and falling to the lows of US$27.87. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Karat Packaging's current trading price of US$28.34 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Karat Packaging’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Karat Packaging
What Is Karat Packaging Worth?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 18.93x is currently trading slightly below its industry peers’ ratio of 19.05x, which means if you buy Karat Packaging today, you’d be paying a decent price for it. And if you believe that Karat Packaging should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Karat Packaging’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Karat Packaging generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 22% over the next couple of years, the future seems bright for Karat Packaging. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? KRT’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at KRT? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?