METHODE ELECTRONICS (MEI): A Short Circuit or Just a Blown Fuse?

Originally posted Jan 22 on the Woodworth Contrarian News page: https://www.woodworth.fund/news/methode-electronics-mei-a-short-circuit-or-just-a-blown-fuse

Brought to you by Drew Millegan & The Woodworth Contrarian Fund

If you want to clear a room at a cocktail party in 2026, tell them you’re excited about an auto-parts supplier undergoing a "transformation" during an EV slowdown. If you want to clear the room even faster, mention that its revenue is down double-digits and it just missed earnings.

Enter Methode Electronics (MEI).

At first glance, MEI looks like a textbook value trap. The stock is down nearly 40% over the last year, hovering around $7.50. Wall Street has effectively ghosted the company, treating it like a legacy relic that got lost on the way to the electric vehicle revolution. The consensus view is simple: the EV transition is stalling, Methode’s sales are shrinking, and the turnaround is taking too long.

But at the Woodworth Contrarian Fund, we like it when the market leaves a company for dead—especially when the balance sheet says otherwise. At Woodworth, this is basically our hunting ground: out-of-favor names where the narrative is broken, the chart looks guilty until proven innocent, and the balance sheet is quietly doing the heavy lifting. We’re not trying to predict the next quarter—we’re trying to buy optionality when the market is pricing a company like it’s already a corpse. That means stepping in when sentiment is at its worst and the valuation implies permanent impairment, then letting time & execution do the rerating work. We initiated a position in MEI earlier this month for exactly that setup—“ugly” fundamentals on the surface, but a price that assumes the turnaround fails outright.

The Ugly: Why Everyone Hates It

Let’s get the bad news out of the way, because there is plenty of it. In its fiscal Q2 2026 report released in December, Methode posted a 15.6% year-over-year revenue decline to $246.9 million. They missed EPS estimates. They are battling a $100 million headwind from softening EV demand and the roll-off of legacy programs.

If you run a simple screen for "growth" or "momentum," MEI doesn't just fail; it gets banned from the database.

Under the Hood: The 0.4x Book Value Opportunity

A Methode Electronics Facility (methode.com 2026)

However, if you stop looking at the income statement’s red ink and start looking at the balance sheet and cash flow guidance, a different picture emerges.

1. Priced for Liquidation, Not Operation MEI is currently trading at roughly 0.4x Book Value. With a Book Value Per Share of roughly $18.75, the market is effectively pricing the company’s assets at 40 cents on the dollar. Even more telling, MEI’s tangible book value per share is roughly $7.83. With the stock hovering around ~$7.50, the market is valuing the business at (or slightly below) its hard-asset floor—before giving any credit for a going-concern operation, customer relationships, or a turnaround that simply “works okay” instead of perfectly. This implies a level of distress that simply doesn’t match the liquidity profile.

2. The Cash Flow Disconnect Despite the headline loss, management reaffirmed their fiscal 2026 guidance: $900 million to $1 billion in sales and $70–$80 million in Adjusted EBITDA. More importantly, they still expect to deliver positive free cash flow for the full year.

We aren't talking about a company burning furniture to stay warm. We are talking about a company generating cash while trading at a valuation usually reserved for bankruptcy candidates.

3. Sequential Signs of Life While the year-over-year numbers are ugly, the sequential numbers tell a story of stabilization. Sales were up 2.6% quarter-over-quarter. Adjusted EBITDA margins expanded. The "transformation" isn't a mythical future event; the cost cuts and operational fixes are starting to show up in the margins now.

The Charts: Signs of a Pulse

MEI 3 Year Chart Analysis

While the fundamental story requires patience, the technical setup suggests the selling pressure has finally exhausted itself. For the first time in nearly two years, the chart is showing constructive behavior rather than a "falling knife."

1. The "Line in the Sand" at $7.10 The most critical feature on the chart is the distinct floor forming at $7.10. This level has acted as rigid support throughout December and early January. We have seen multiple tests of this level—on heavy volume days—where buyers stepped in aggressively. In technical terms, this is classic "accumulation." As Clifford Pistolese outlines in Using Technical Analysis, repeated tests of support with buyers stepping in is a classic footprint of accumulation. The market has decided that below $7.10, the stock is simply too cheap to ignore.

2. Reclaiming the 200-Day Moving Average For most of 2024 and 2025, MEI traded significantly below its 200-day moving average—a hallmark of a secular bear trend. That changed in late 2025.

• Current Price Action: The stock (currently ~$7.50) has successfully reclaimed its 200-day moving average (sitting near $6.92) and is now using it as support.
• The 50-Day Battle: We are currently seeing a "battleground" around the 50-day moving average ($7.14). A decisive weekly close above $7.50 would confirm a "Golden Cross" setup, potentially attracting algorithmic trend-followers who have been short for years.

3. RSI Divergence The Relative Strength Index (RSI) is currently hovering around 66. This is the "sweet spot"—it indicates bullish momentum is building, but the stock is not yet overbought (typically >70). More importantly, we spot a positive divergence: while the stock price made lower lows in October and November, the RSI made higher lows. This loss of downside momentum often precedes a sharp reversal.

The Verdict: Price Targets & Risk/Reward

The asymmetry here is hard to ignore. The downside appears capped by tangible asset value and the $7.10 technical support. The upside, however, requires only a modest reversion to the mean to generate significant returns.

Base Case: $11.25 (50% Upside)

• Rationale: This target assumes a conservative re-rating to 0.6x Book Value. Even at this level, MEI would still be trading at a 40% discount to its accounting equity. This aligns with a roughly 7.5x multiple on the low end of FY2026 EBITDA guidance ($70M).
• Trigger: Consistent execution of the "transformation" plan and two consecutive quarters of positive free cash flow.

Bull Case: $15.00 (100% Upside)

• Rationale: This target assumes a re-rating to 0.8x Book Value—still below the company's historical average of trading >1.0x book. If the EV market stabilizes and legacy program roll-offs conclude, the market will stop pricing MEI as a distressed asset and start pricing it as a going concern.
• Trigger: A beat-and-raise on FY2027 guidance or the announcement of a strategic review/asset sale.

Conclusion We aren't saying MEI is going to be the next Nvidia. We are saying that at $7.50, you are paying a "disaster price" for a business that is merely having a "difficult year." The chart says the bottom is in. The balance sheet says the downside is capped. While the rest of the market chases the AI dragon, we’ll happily pick through the auto-parts bin for misunderstood value.

Disclosure: This analysis is for informational purposes only. Position sizing, timing, and risk management are essential. Do your own due diligence.

Please note that the Woodworth Contrarian Stock & Bond Fund, LP, of which the Millegan Brothers manage and are invested in, currently hold a position of MEI as of the publication date of this article. They may or may not choose to modify their exposure to this name for any reason at any time. This is not a recommendation to buy or sell MEI or any other name - investments incur significant risk, our risk tolerance may be significantly higher than the average investor, and any discussion in this article does not take into consideration your individual circumstances.

DEEP ROOTS. STUBBORN GROWTH. OREGON-BASED.

Now is a great time to diversify your portfolio with an investment into an award-winning fund. Call us or visit our website to inquire on an investment today in the Woodworth Contrarian Fund as an accredited investor.

(800) 651-1996 - info@woodworth.fund - www.Woodworth.Fund

Contrarian Value-Based Hedge Fund of the Year 2022-2024

LISTEN TO THE MILLEGAN BROTHERS ON THE CAPITAL CALL PODCAST

www.CapitalCall.Stream

Quinn Millegan (left) & Drew Millegan (right)

About the Managers: Brothers Drew Millegan and Quinn Millegan manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.

Something missing from your portfolio may be a diversification into the Woodworth Contrarian Fund for accredited investors. Now is a great time to diversify your portfolio with an investment into a multi-award-winning fund. An exposure to a value-based contrarian strategy is a unique opportunity for your long term capital that you’re seeking aggressive returns for. With nine years of the Woodworth Fund under management, the Millegan Brothers are trained stock-pickers and experienced venture capital investors with a proven track record. Give us a call today to discuss a liquid investment with independent administration and independently audited monthly statements and a personal relationship.