Over the past six months, Napco’s stock price fell to $30.32. Shareholders have lost 17.9% of their capital, which is disappointing considering the S&P 500 has climbed by 3.1%. This might have investors contemplating their next move.
Is there a buying opportunity in Napco, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Napco Not Exciting?
Despite the more favorable entry price, we're cautious about Napco. Here are three reasons why we avoid NSSC and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within business services, a stretched 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 3.7% over the last two years was well below its five-year trend. 
2. Fewer Distribution Channels Limit its Ceiling
With $181.2 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.
3. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Napco’s revenue to stall, a deceleration versus its 10.9% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
Final Judgment
Napco’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 25.9× forward P/E (or $30.32 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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