Stock of the Week: This Fast-Growing Food Services Company Is in a Perfect Position to Thrive
Alpesh Patel|August 21, 2023
Hungry for a stock that’s growing earnings AND revenues? Look no further…
Our Stock of the Week provides essential products to the food services industry. It’s a smaller company that’s been growing earnings at an average annual rate of 50%.
When a lesser-known company is able to do that, it usually means there’s lots of upside ahead…
That’s why it’s important that you pay close attention to today’s video.
In it, I run through all the important details – including my personal favorite metrics – to determine whether this company is a worthy pick right now.
Click on the image below to watch it.
Hello friends. It’s Stock of the Week time. And I always tell you I’ve got a special one each week. This one’s actually gone up a little bit since it’s been on my watchlist, but it’s nevertheless a good one. What I’ve got is Karat Packaging (KRT) for you. Now, I’m Alpesh Patel, hedge fund manager. And my team puts across my desk companies for Stock of the Week to show you. And they put this across my desk… let me see, a few weeks ago. And because I’ve been busy with other Stocks of the Week, I hadn’t got to it, but it’s still one I like a lot. So Karat Packaging…
It’s a fast-growing public company. It provides high-quality, environmentally friendly, single-use disposable products for the restaurant and food service industry. And as everyone comes back from COVID and is spending like crazy, the demand continues.
The food services industry is obviously key. Tableware, containers, car lids, cutlery, straws… They’ve got plastic, paper, biopolymer-based and other compostable forms. I’m not sure how you compost plastic, but presumably they found a way to do it. It’s a Nasdaq company, and you’ll know the Nasdaq’s been doing rather well this year generally.
The company does pay a dividend as well. The market cap is only $385 million, so a small company with much upside to go. It’s been growing earnings at an average annual rate of 50%, and revenues have been growing at an average rate of 21%. So those profit margins, they’re pretty strong.
Okay, what attracted me to the company? Well, on my Alpesh Growth-Value-Income rating – which is my proprietary algorithm which looks at the valuation of a company, its revenue growth and dividend deals – it’s got an 8. Forecast price to earnings ratio is at a multiple of 14, which is relatively cheap. In other words, today’s share price compared to the forecast profits of the company.
Cash return on capital invested (CROCI) is at 7.4% – not as high as I would’ve liked, but at least it’s positive. It’s generating cash for the capital that’s been invested in the company. And I anticipate cash will continue, but the capital investment won’t need to continue at such a strong rate, and therefore that CROCI number should start increasing as well. If you want to know why CROCI is so important – and why Goldman Sachs use it for their clients as well – have a look at the links around this video. So, all in all, some very attractive numbers there.
The price has been going on at a fair rip, and momentum is high. So we’ve got to watch out for those aspects. On a discounted cash flow basis, however, it remains just shy of 50% undervalued. So a lot going for it. Good company. I like the looks of it. This is just a “tip of the iceberg” insight for you. Obviously, we go into a lot more detail with the stocks that we select for GVI Investor. Thank you very much.