Napco Security Technologies (NSSC 18.82%) easily surpassed Wall Street’s estimates in its most recent quarter and increased its payout to investors. The stock took off in early trading as a result, and was up 10% as of 10:30 a.m. ET on Monday.
The strongest quarter in company history
Napco makes electronic security devices including automated locks and building access control systems. In its fiscal 2024 second quarter, which ended Dec. 31, the company earned $0.34 per share on revenue of $47.5 million, easily surpassing the consensus estimates of $0.26 per share in earnings on $43.92 million in sales.
Revenue was up 12% year over year, while net income increased by 221%. Recurring service revenue increased by 25% to $18.5 million. The services side of the business helped drive that surge in profitability, generating a gross margin of 90% during the period.
In the earnings release, CEO Richard Soloway said the period was “the strongest quarter in our company’s history,” and also said he sees better times up ahead. “While we are encouraged with the improved gross margin for hardware sales of 29%, we believe this could improve further as the fiscal year progresses,” he said.
The company also announced that its next quarterly dividend would be $0.10 per share, an increase of 25% from the $0.08 per share it distributed in December.
Is Napco stock a buy after its strong quarterly results?
Napco is a relatively small company, and its stock has been volatile, but its latest results provided a lot for investors to be excited about. It appears to have a clear path for sustainable top- and bottom-line growth, and the services side of the business should help make its revenue more predictable, which over time should translate into more stability in the share price.
The stock is not cheap, trading at an enterprise value about 30 times earnings, so arguably, some of that expected future growth is already priced in. But for investors willing to accept some volatility with what could be a long-term winner, Napco is worthy of a close look.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
