We recently published a list of 10 Best Packaging Stocks to Buy According to Analysts. In this article, we are going to take a look at where Karat Packaging Inc. (NASDAQ:KRT) stands against other best packaging stocks to buy according to analysts.
An Overview of the Global Packaging Market
According to a report by Mordor Intelligence, the packaging market size is estimated at $1.14 trillion in 2024 and is expected to grow to $1.38 trillion by 2029, growing at a compound annual growth rate of 3.89% during the forecast period (2024-2029).
Region-wise, Asia Pacific is the fastest-growing region in the packaging market, with plastic packaging being widely utilized in the region. India and China’s food and beverage markets are contributing to this utilization. Japan is another major consumer of paper-based products in diverse sectors.
Market trends reflect that paper and paperboard packaging products are to witness the highest growth. There has been an increasing demand for eco-friendly packaging with minimal environmental footprint. In this regard, paper-based solutions such as bags, pouches, and cartons, have driven a surge in sustainable packaging adoption. The demand for eco-friendly paper packaging solutions is also coming from the environmental regulations on non-biodegradable and non-recyclable packaging solutions as well as the rising trend of online retail.
The perception of customers regarding paper and paperboard packaging being more environmentally friendly than plastic packaging is also shaping this demand. Gen Z is especially more inclined towards the rising sustainability trend. Oisin Hanrahan, the CEO and co-founder of Keychain, described the prevalent Gen Z consumer preferences by stating:
“Gen Z has a unique preference for conscious consumption when compared to any generation, which provides a huge opportunity for brands to win them over with sustainable ingredients, packaging, and practices”
Is Generative AI the Future of the Packaging Industry?
As reported by McKinsey & Company, the packaging industry has historically been behind other sectors in terms of adopting new technologies such as traditional AI and machine learning. However, a recent survey of over 200 paper and packaging executives across substrates and geographies revealed that executives recognize the potential of generative AI to drive business value. While approximately 95% of the respondents believed their companies should invest in gen AI, 77% said that their companies have moderate to strong intentions to use the technology in the near future.
In regards to the current adoption of gen AI, 24% of respondents reported that they either have launched or are developing generative AI tools or solutions in their area of work. A majority of those who had implemented gen AI saw its generated impacts as meeting or exceeding expectations. Survey respondents also expect generative AI to enable revenue growth and cost savings. They believed that opportunities to use generative AI are present across the packaging and paper value chain. The technology can also help generate new ideas through intellectual property and patent analytics, give customer analysis, and create customization options. Gen AI is expected to have the most profound impact on the commercial side of the industry for instance increasing sales team productivity, optimizing marketing spend, and improving pricing capabilities for companies.
While generative AI has an obvious advantage over traditional Artificial Intelligence since it can deal with messier data and offers easier adoption because of its accessible user interface, players in the paper and packaging industry are still subject to challenges. These challenges include limited access to data and to a modern data tech stack, gen AI’s use causing intellectual property or privacy concerns, limited understanding of use cases to drive value in commercial activities, associated costs, and resistance to change among others.
Our Methodology
In order to compile a list of the 10 best packaging stocks to buy according to analysts, we first used a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest average upside potential. The 10 best packaging stocks to buy according to analysts have been arranged in ascending order of their average upside potential, as of November 1.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A chef in a restaurant kitchen carefully assembling a meal with fresh ingredients served in plastic and biopolymer-based containers.
Karat Packaging Inc. (NASDAQ:KRT)
Average Upside Potential: 18.52%
Number of Hedge Fund Holders: 7
Karat Packaging Inc. (NASDAQ:KRT) manufactures and distributes single-use disposable products used in various restaurant and food service settings. The company’s products include food packaging, containers, tableware, cups, lids, cutlery, and straws. Additionally, KRT distributes certain specialty food and beverage products and offers customized solutions, including new product development and design, printing, and logistics services.
Karat’s history reflects that it has been a consistently growing manufacturer and distributor of disposable products for restaurants and the food service industry. The firm has numerous competitive strengths including being a one-stop shop supplier with broad product offerings, global sourcing capabilities, leadership in eco-friendly products, customized solutions as well as a diverse and growing blue-chip customer base. Since the growth of the food delivery and takeout market has highly increased the demand for disposable packaging, the market conditions are favorable.
For the second quarter, Karat Packaging Inc. (NASDAQ:KRT) posted net sales of $112.6 million as compared to $108.7 million in the prior year quarter. Despite the higher ocean freight costs which spiked in mid-May and were high through July, the firm’s gross margin remained steady. While KRT continues to expand its business pipeline, it faced issues during Q2 with the initiation of certain new orders taking longer, partly due to administrative set-up procedures at a number of the larger chain accounts and softer demand in certain categories.
Thus, Karat Packaging Inc. (NASDAQ:KRT) is a leading packaging company with a history of proven success, a bunch of competitive edges as aforementioned, and a positive market outlook. The firm also has the ability to continuously augment product offerings to cater to changing customer needs.
Overall, KRT ranks 4th on our list of best packaging stocks to buy according to analysts. While we acknowledge the potential of KRT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than KRT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
