Napco (NASDAQ:NSSC) Surprises With Strong Q2, Stock Jumps 22.4%

Security systems manufacturer Napco (NASDAQ:NSSC) reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales were flat year on year at $50.72 million. Its GAAP profit of $0.33 per share was 23.7% above analysts’ consensus estimates.

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Richard Soloway, Chairman and CEO, commented, "With the completion of our fourth quarter of Fiscal 2025, our RSR remains strong as we continue to see double digit growth in Q4 and annually and gross margins at 91%. RSR represents 44% and 48% of total revenue in Q4 and annually, respectively, and our RSR has a prospective run rate of approximately $94 million based on our July 2025 recurring service revenue, which reflects approximately a $5 million increase from what was reported at the end of our third quarter of Fiscal 2025. We faced challenges with our equipment revenue performance throughout Fiscal 2025 as distributor destocking lingered throughout the year as well as timing of larger project work in our door-locking segment, however we are encouraged by the 27% increase in equipment sales from Q3 to Q4, and we are optimistic that equipment sales will grow in Fiscal 2026, and believe we are well positioned with the evolving tariff environment."

Company Overview

Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ:NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $181.6 million in revenue over the past 12 months, Napco is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Napco’s 12.4% annualized revenue growth over the last five years was excellent. This shows it had high demand, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Napco’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.4% over the last two years was well below its five-year trend.

This quarter, Napco’s $50.72 million of revenue was flat year on year but beat Wall Street’s estimates by 14.1%.

Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months, similar to its two-year rate. This projection is underwhelming and suggests its newer products and services will not accelerate its top-line performance yet.

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Operating Margin

Napco has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 21.2%.

Analyzing the trend in its profitability, Napco’s operating margin rose by 9.8 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q2, Napco generated an operating margin profit margin of 23.8%, down 7.3 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Napco’s EPS grew at an astounding 38.9% compounded annual growth rate over the last five years, higher than its 12.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Napco’s earnings to better understand the drivers of its performance. As we mentioned earlier, Napco’s operating margin declined this quarter but expanded by 9.8 percentage points over the last five years. Its share count also shrank by 2.5%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Napco, its two-year annual EPS growth of 10.8% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q2, Napco reported EPS of $0.33, down from $0.36 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Napco’s full-year EPS of $1.19 to stay about the same.

Key Takeaways from Napco’s Q2 Results

It was good to see Napco beat analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 22.4% to $38.80 immediately after reporting.

Indeed, Napco had a rock-solid quarterly earnings result, but is this stock a good investment here? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.