For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit.  But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.  Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Karat Packaging (NASDAQ:KRT). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

How Quickly Is Karat Packaging Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes.  So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research.   Karat Packaging managed to grow EPS by 12% per year, over three years.   That's a good rate of growth, if it can be sustained.  

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth.    Unfortunately, Karat Packaging's revenue dropped 4.1% last year, but the silver lining is that EBIT margins improved from 7.1% to 11%.  That's not a good look.  

You can take a look at the company's revenue and earnings growth trend, in the chart below.  Click on the chart to see the exact numbers.

NasdaqGS:KRT Earnings and Revenue History April 19th 2024

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Karat Packaging's future EPS 100% free.  

Are Karat Packaging Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders.  So we're pleased to report that Karat Packaging insiders own a meaningful share of the business.    In fact, they own 65% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders.  Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term.    US$346m  That means they have plenty of their own capital riding on the performance of the business!  

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest.  Our quick analysis into CEO remuneration would seem to indicate they are.    The median total compensation for CEOs of companies similar in size to Karat Packaging, with market caps between US$200m and US$800m, is around US$2.4m.  

Karat Packaging's CEO took home a total compensation package of US$270k in the year prior to December 2022.  That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders.   While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind.  It can also be a sign of a culture of integrity, in a broader sense.

Does Karat Packaging Deserve A Spot On Your Watchlist?

As previously touched on, Karat Packaging is a growing business, which is encouraging.   Earnings growth might be the main attraction for Karat Packaging, but the fun does not stop there.  Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least.     Still, you should learn about the   1 warning sign we've spotted with Karat Packaging.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.