Shares Of Napco Security Up 6% After Co Posts Higher Q2 Profit

Security systems manufacturer Napco reported revenue ahead of Wall Streets expectations in Q4 CY2025, with sales up 12.2% year on year to $48.17 million. Its GAAP profit of $0.38 per share was 18.8% above analysts’ consensus estimates.

Napco (NSSC) Q4 CY2025 Highlights:

• Revenue: $48.17 million vs analyst estimates of $47.82 million (12.2% year-on-year growth, 0.7% beat)
• EPS (GAAP): $0.38 vs analyst estimates of $0.32 (18.8% beat)
• Adjusted EBITDA: $15.35 million vs analyst estimates of $13.86 million (31.9% margin, 10.8% beat)
• Operating Margin: 30.6%, up from 26% in the same quarter last year
• Free Cash Flow Margin: 30.1%, up from 28.8% in the same quarter last year
• Market Capitalization: $1.32 billion

Richard Soloway, Chairman and CEO, commented, "NAPCO delivered another strong quarter fueled by our recurring service revenue and its consistent year over year double digit growth, and the continued demand for our door-locking products that drove double digit growth in our equipment revenue and improved equipment gross margins. Our RSR continues to see growth quarter over quarter with sustained gross margins of 90%, and represents approximately 50% of total revenue in Q2, and has a prospective run rate of approximately $99 million based on our January 2026 recurring service revenue. As a result of our revenue growth and margin expansion, net income increased 29% year over year to a Q2 record of $13.5 million and our adjusted EBITDA margin was 31.9% as compared to 28.4% in Q2 of Fiscal 2025.

Company Overview

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

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $192 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 grew its sales at an exceptional 14% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Napco’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Napco’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4% over the last two years was well below its five-year trend.

This quarter, Napco reported year-on-year revenue growth of 12.2%, and its $48.17 million of revenue exceeded Wall Street’s estimates by 0.7%.

Looking ahead, sell-side analysts expect revenue to grow 9.6% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and suggests its newer products and services will fuel better top-line performance.

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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 22.7%.

Looking at the trend in its profitability, Napco’s operating margin rose by 14 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Napco generated an operating margin profit margin of 30.6%, up 4.6 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Napco’s EPS grew at an astounding 46.1% compounded annual growth rate over the last five years, higher than its 14% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Napco’s earnings can give us a better understanding of its performance. As we mentioned earlier, Napco’s operating margin expanded by 14 percentage points over the last five years. On top of that, its share count shrank by 2.4%. These 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 5.7% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q4, Napco reported EPS of $0.38, up from $0.28 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Napco’s full-year EPS of $1.33 to grow 9%.

Key Takeaways from Napco’s Q4 Results

It was good to see Napco beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $36.97 immediately after reporting.

Napco put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here (it’s free).