Last Update 11 Jan 26

NSSC: Sustained Estimate Beats And Equipment Demand Should Support Further Outperformance

Analysts have raised their price target on Napco Security Technologies by $7 to $50, citing recent estimate beats, faster equipment sales growth, and increased confidence in both near-term and long-term performance.

Analyst Commentary

Bullish analysts are pointing to recent estimate beats and quicker equipment sales growth as key reasons for their higher conviction in Napco Security Technologies. The latest upgrade comes with a price target of $50, up from $43. This reflects increased confidence in how the company is executing against expectations.

Bullish Takeaways

Recent results beat estimates for a third straight quarter. Bullish analysts view this as a sign that execution on growth initiatives is tracking ahead of prior expectations.
Accelerating equipment sales growth is seen as an important support for future revenue mix and earnings quality, not just a one-off source of upside.
Analysts highlight what they describe as easier comparisons over the next two quarters. They think this could make it less difficult for the company to continue outperforming consensus estimates.
The price target increase to $50 signals stronger conviction in both near-term and longer-term performance. This feeds directly into more constructive views on valuation.

Bearish Takeaways

Some cautious analysts may question how sustainable recent estimate beats are once the period of easier comparisons passes. This could affect longer-term confidence in the earnings trend.
Faster equipment sales growth, while helpful today, can raise questions about how demand will look if order timing or customer budgets shift, creating potential variability in reported results.
The move in target price to $50 concentrates more expectations into the current valuation, which can leave less room for error if execution or growth moderates.
Increased conviction from bullish analysts can also signal that more positive views are already reflected in the market, making future upgrades or estimate lifts harder to come by if performance only tracks current expectations.

What's in the News

NAPCO Security Technologies plans to showcase its latest product suite at ISC East 2025 at New York City's Jacob Javits Center on November 19-20, exhibiting at Booth 903. The company will focus on its unified MVP ecosystem that ties together access control panels, electronic locks, credential readers, and the MVP Cloud Platform across education, healthcare, commercial, and government use cases (Key Developments).
The company is positioning its MVP Cloud Platform and associated hardware as a way for its dealer network to pursue new equipment sales opportunities while creating recurring monthly revenue with each installed system. The platform is intended to cover use cases from curb to cloud for dealers, locksmiths, integrators, and other channel partners (Key Developments).
NAPCO plans to highlight updates to its StarLink communications line, including two new TriCarrier Cellular StarLink Intrusion Communicators that use multi SIM cellular technology and offer a migration path from legacy POTS lines, expanding on its existing Commercial Fire communicator (Key Developments).
The product lineup at ISC East 2025 is also set to include the XK5 slimline keypad and 2R touchscreen, which are designed for both new deployments and upgrades to existing Gemini 8 to 255 zone systems across North America. These products are intended to modernize interfaces while giving dealers migration options for installed bases (Key Developments).
From July 1, 2025 to September 30, 2025, NAPCO repurchased 0 shares for US$0 million, and has completed the repurchase of 640,259 shares, representing 1.76% of shares, for US$16.15 million under the buyback first announced on November 4, 2024 (Key Developments).

Valuation Changes

Fair Value: Model fair value estimate is kept steady at US$48.83 per share, with no change in the latest update.
Discount Rate: Discount rate is essentially unchanged, moving slightly from 8.40% to 8.39%.
Revenue Growth: Long term revenue growth assumption is stable at about 10.77%, with only a minimal rounding adjustment.
Net Profit Margin: Assumed net profit margin remains effectively the same, at roughly 25.72%.
Future P/E: Forward P/E input is broadly unchanged, moving marginally from 31.43x to about 31.43x.

Growth in high-margin recurring service revenue and expansion into new markets support stronger margins and more predictable long-term earnings.
Ongoing digital innovation and pricing actions, backed by a strong balance sheet, drive product innovation, gross margin recovery, and long-term growth.
Softness in hardware demand, reliance on recurring revenue from one product, and external risks threaten earnings growth, margins, and long-term revenue resilience.

Catalysts

About Napco Security Technologies

Develops, manufactures, and sells electronic security systems for commercial, residential, institutional, industrial, and governmental applications in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Persistent growth in high-margin, recurring monthly service revenue-driven by increased deployments of StarLink fire radios and the expected ramp-up of new cloud-based platforms like MVP-positions Napco to expand margins and achieve more stable, predictable earnings over the long term.
Broader societal demand for robust security and access control, particularly in verticals like schools and commercial buildings, continues to open new addressable markets for Napco's integrated, scalable solutions, supporting revenue acceleration and customer base diversification.
Napco is capitalizing on industry-wide digital transformation, evidenced by ongoing R&D investment in wireless and cloud-enabled products (e.g., the next-gen MVP platform and expanded radio communication offerings), which enhances product innovation, market share gains, and topline growth.
Pricing actions taken in 2025-including an 8.5% tariff-offset increase and an annual 5% adjustment-are expected to be fully realized in fiscal 2026, providing a near-term lift to equipment sales revenue and helping restore/improve gross margins following recent cost headwinds.
Operational discipline, strong cash generation and a debt-free balance sheet enable Napco to reinvest in innovation, pursue strategic acquisitions, and flexibly return capital to shareholders-supporting long-term earnings growth and valuation recovery.

Napco Security Technologies Earnings and Revenue Growth

Napco Security Technologies Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Napco Security Technologies's revenue will grow by 8.7% annually over the next 3 years.
Analysts assume that profit margins will increase from 23.9% today to 24.8% in 3 years time.
Analysts expect earnings to reach $57.8 million (and earnings per share of $1.62) by about September 2028, up from $43.4 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.2x on those 2028 earnings, down from 32.9x today. This future PE is greater than the current PE for the US Electronic industry at 23.9x.
Analysts expect the number of shares outstanding to decline by 2.8% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Napco Security Technologies Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Equipment sales declined 15.7% year-over-year and showed lower gross margins (24% vs. 29% prior year), indicating prolonged softness in hardware demand and pricing power; continued weakness here or increased reliance on price-driven demand could further compress revenues and gross margins if pull-forward effects from tariffs prove temporary rather than structural.
Operating income and net income both decreased substantially year-over-year (operating income down 14%, net income down 13%), and while recurring revenue is growing, the contraction in hardware profitability and increased SG&A/R&D spending threatens overall earnings momentum and net margin resilience if top-line growth remains muted.
The company remains heavily reliant on its StarLink Fire radio platform for recurring revenue growth, which exposes it to technology risk and the threat of rapid obsolescence from new, integrated or DIY competitors offering alternative smart security or cloud-based solutions, potentially eroding future recurring revenue and long-term revenue growth.
Tariff-related uncertainties, cost inflation, and industry-wide channel inventory destocking introduce ongoing risk to demand visibility and pricing; if tariff relief proves temporary or global economic conditions weaken, Napco could see pressure on both revenue and margin from reduced commercial/institutional spending.
Although the company reports strong internal controls after past accounting issues, future risks around compliance, audit, or financial reporting could re-emerge, which may impact investor confidence, increase regulatory/compliance costs, and depress future valuation multiples and access to capital, thus affecting long-term earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $40.333 for Napco Security Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $36.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $233.3 million, earnings will come to $57.8 million, and it would be trading on a PE ratio of 28.2x, assuming you use a discount rate of 8.2%.
Given the current share price of $40.1, the analyst price target of $40.33 is 0.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Have other thoughts on Napco Security Technologies?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Demand Momentum And Service Revenue Expansion Will Drive Greater Resilience Ahead