NAPCO (NSSC) is one of the world’s leading solutions providers and manufacturers of high technology electronic security, explains Tom Bishop, small cap expert and editor of BI Research.
The company's products include door locking systems, access control, home alarm/detection systems to detect intrusion, fire, temperature or glass breakage, and IoT connected home products.
NAPCO is grew fiscal Q2 EPS by 27% to $0.19 and beat estimates by a penny; nevertheless, the stock tanked on the news, presumably because sales missed estimates by 4%.
And this was because a large distributor that was being acquired by a third party held back orders of NAPCO’s products while it pared down its inventory for the acquisition.
The company expects that to be a short term situation and that all is well, based on the fact that sales by that distributor to the dealers that install NAPCO products supplied by this distributor actually grew 15% year over year. At the end of the day that’swhat matters.
I heard nothing else negative on the latest conference call. I think the stock’s drop is a ridiculous overreaction. Ultimately demand comes from dealerswho are installing the equipment.
Fundamentally the drivers for this Company’s growth remain intact. These include wireless fire and intrusion alarm communicators, school security solutions, enterprise access control systems and architectural locking products and above all else, high margined (like around 80%) recurring revenue for monitoring services which is growing at 40% to a run rate of $24 million and now accounts for about 20% of revenue.
And the company is working on expanding the recurring revenues aspect of other products as well, such as its school security solutions. In fact, they anticipate this high margined recurring revenue nearly doubling to $40 million “by the end of 2021.” That will keep driving EPS growth much faster than overall revenue growth.
Also they are launching a number of new products like iSecure which won the Most Valuable Product award at a recent trade show, and several StarLink radios including the new line of AT&T LTE StarLink Radios with the latest technology, all with recurring revenue.
Other growth is coming from its connected home products. I believe in the company's long-term prospects. Overall, to me, this is yet a great buying opportunity.
