KRT

Karat is a genuinely good small-cap operator wearing a fair-value price tag. FY2025 hit record net sales of $468M (+10.7%), ROE is a healthy 21.1%, leverage is modest (liabilities/equity 0.88x, long-term debt of just $203K), and the asset-light pivot is working: management cut U.S. manufacturing to ~9% of sales from 11% and rebalanced sourcing out of China (22%→15%) into Taiwan, Malaysia and Vietnam to blunt tariff exposure. Gross margin held at 36.8% through that transition, and eco-friendly products (34.1% of sales) plus the new chain paper-bag contract ($7.9M→$13.7M) give real, identifiable growth lanes. At 22x FY diluted EPS of $1.56 and 1.5x sales, you are paying a reasonable multiple for that quality.

The problem is that the top-line record isn't reaching the bottom line. Net income grew only 5.0% and diluted EPS just 4.7% — revenue up double-digits, earnings up low-single-digits, which says pricing/mix and tariff-mitigation costs are absorbing the volume. The five-year record confirms the plateau: net income was $32.5M back in FY2023 and is $31.5M in FY2025, so two years of revenue growth have produced no earnings progress. Net margin is a thin 6.7%, typical of a distribution model, leaving little cushion if freight or tariff costs swing against the sourcing strategy management is actively juggling.