What Happened?

Shares of foodservice packaging supplier Karat Packaging (NASDAQ: KRT) fell 3% in the afternoon session after the company reported third-quarter 2025 financial results that showed declining profitability despite higher sales. 

The company's revenue grew 10.4% year-over-year to $124.5 million, meeting Wall Street's expectations. However, its adjusted earnings per share (EPS) of $0.37 missed analyst estimates and declined from $0.47 in the same quarter last year. The drop in profit was driven by a tighter gross margin, which slipped to 34.5% from 38.6% year-over-year. While Karat's revenue guidance for the next quarter came in above expectations, the negative market reaction suggested investors were more focused on the reduced earnings and shrinking margins than the top-line growth.

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What Is The Market Telling Us

Karat Packaging’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The previous big move we wrote about was 25 days ago when the stock gained 3.9% on the news that a softened tone from President Donald Trump on U.S.-China relations boosted investor sentiment. The positive shift followed a weekend post on Truth Social where Trump stated, "Don't worry about China, it will all be fine!" and expressed a desire to help rather than hurt the country's economy. This statement provided significant relief to markets that had ended the prior week with steep losses. In response, the Nasdaq Composite jumped 2.2%, the S&P 500 gained 1.6%, and the Dow Jones Industrial Average closed 1.3% higher, as investors' fears of escalating trade tensions subsided.

Karat Packaging is down 23.7% since the beginning of the year, and at $22.76 per share, it is trading 32% below its 52-week high of $33.46 from February 2025. Investors who bought $1,000 worth of Karat Packaging’s shares at the IPO in April 2021 would now be looking at an investment worth $1,226.

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