OPXS Skyrockets 140% in a Year: Should You Buy the Stock?

Optex Systems Holdings, Inc. OPXS shares have surged 139.5% in the past year compared with the industry’s 46.2% growth. The company has outperformed other industry players, including BWX Technologies, Inc. BWXT and Axon Enterprise, Inc. AXON. Shares of BWXT and AXON have rallied 98% and 8.2%, respectively, in the same time frame. OPXS benefits from strong defense demand, a growing order backlog, long-term relationships with major contractors, and specialized expertise in precision optical systems for military platforms.

A Key Look Into OPXS’ Business Operations

Optex Systems manufactures optical sighting systems and related assemblies for the U.S. Department of Defense, foreign military programs, commercial markets and consumer applications. Its products are used on U.S. military land vehicles such as Abrams, Bradley, Stryker and other armored vehicles, and include periscopes, rifle and surveillance sights, night vision assemblies and other optical components. 

Most products are built to customer specifications and delivered directly to the armed services or defense prime contractors, while less than 1% of revenue comes from reselling components originally produced by the company. It also secured several new defense contracts for optical systems, laser filters and periscopes supporting U.S. and allied military programs. Its products are delivered through multi-year contracts to government agencies and prime contractors, with production primarily conducted at facilities in Richardson and Dallas, TX.

Optex Systems’ Key Tailwinds

A major growth driver for the company is the sustained demand for defense and military optical systems. Optex Systems manufactures optical sighting systems, periscopes, laser filters, and optical assemblies that are used in military land vehicles such as the Abrams, Bradley and Stryker platforms. These products play a critical role in battlefield visibility, targeting, and surveillance operations. Because many of these systems are integrated into essential military platforms, the company benefits from ongoing defense modernization programs and equipment upgrades. 

Another positive factor supporting the company’s outlook is its strong relationships with major U.S. defense contractors and government agencies. A large portion of Optex Systems’ revenues is derived from supplying components to prime defense contractors as well as directly to the U.S. Department of Defense. These established relationships create high switching costs and make it difficult for new competitors to enter the supply chain. The company’s ability to operate both as a prime contractor and as a subcontractor allows it to participate in multiple defense programs simultaneously. 

The company is also supported by strong order activity and a healthy backlog, which provides visibility into future revenues. During the first quarter of fiscal 2026, Optex recorded approximately $7.9 million in new customer orders, representing a notable increase compared to the prior year period. 

New contract wins and follow-on orders further support the company’s growth prospects. For instance, Optex secured a $2.3 million order for optical sub-assemblies with deliveries scheduled through 2026, demonstrating continued demand from long-standing customers. The company also received a $2.2 million order related to a night vision goggle program, which highlights its role in supplying high-performance optical components for advanced military systems. Such contracts not only expand the company’s backlog but also reinforce its reputation as a trusted supplier of specialized optical equipment for defense applications.

Lastly, Optex benefits from its specialized manufacturing capabilities and technical expertise in precision optics. The company operates advanced facilities capable of producing complex optical coatings, laser protection filters, and other high-precision optical assemblies. These capabilities require specialized equipment, engineering knowledge and strict quality standards, which create significant barriers to entry for competitors.

Challenges Persist for OPXS’ Business

Optex Systems faces several headwinds that could pressure its near-term performance. The company is exposed to rising raw material costs, particularly aluminum, steel, gold, and acrylic, which have increased production expenses and affected margins on fixed-price contracts negotiated prior to recent inflationary pressures. Additionally, certain legacy long-term contracts are currently in loss positions due to higher labor, overhead, and material costs, requiring the company to record contract loss reserves. The company has already experienced lower demand for laser filters and periscopes due to program delays and funding uncertainties. Furthermore, supply chain disruptions, component shortages and reliance on specialized suppliers may cause production delays or cost escalation.

Optex Systems’ Valuation

The company is cheaply priced compared with the industry average. Currently, OPXS is trading at 2.06X trailing 12-month EV/sales value, below the industry’s average of 14.71X. The metric also remains lower than that of the company’s peers, BWX Technologies (6.36X) and Axon (16.44X).

Conclusion

Optex Systems appears well positioned to benefit from sustained defense spending, a solid backlog, and its niche expertise in precision optical systems for military platforms. However, ongoing cost pressures, supply chain challenges, and losses on certain legacy contracts may continue to weigh on the company’s near-term performance.

Strong fundamentals, coupled with OPXS’ undervaluation, present a lucrative opportunity for investors to add the stock to their portfolio. 

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This article originally published on Zacks Investment Research (zacks.com).

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