Napco Crashes 25% after earnings: Is the investment case still intact?
What am I doing with my Napco shares?
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Napco crashed 25% on Monday after reporting Q2 earnings. Although Napco has been very volatile, it is a core holding of my portfolio that has experienced much pain in the last few years. Let’s discuss earnings and their meaning for my investment thesis and conviction.
Napco reported a big double miss this quarter with EPS of $0.28 versus $0.34 (-16% miss) and revenues of $43 million versus $50 million (-13% miss). Napco has usually been a steady grower that beat expectations, but the last three quarters were all misses, and the stock declined by over 10% each time. Revenues are now, for the first time in a while, declining on a Y/Y basis. This is very unusual and erodes trust in management (as seen in the share price) to return to its usual growth rates.
On the bright side, Napco is still highly profitable, with a 28% adjusted EBITDA margin and a 29% operating cash flow margin. The balance sheet is very strong, with $100 million in cash, and Napco accelerated its share buybacks from $7 million in Q1 to $11 million in Q2. Let’s understand the details and what it means for my investment case.
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