Knowles (KN) One-Off Loss Undermines Bullish Earnings Narratives Despite Strong Growth Forecasts

Knowles (KN) reported a net profit margin of 6.2%, down from last year’s 7.2%, as a one-off loss of $14.5 million over the past twelve months weighed on recent numbers. With a five-year track record of profitability but average earnings growth of -3.7% per year, the latest results point to a negative earnings trend and prevent any direct comparison to the company’s historic average. Looking ahead, consensus forecasts see Knowles delivering annual earnings growth of 39.8% over the next three years, well above the broader US market expectation of 15.5% per year. However, revenue expansion is set to lag at 6.5% per year.

See our full analysis for Knowles.

Now we will see how Knowles’ latest earnings performance lines up against the most widely held narratives for the stock. Some views could be reinforced, while others might get a closer look.

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Cash Flow Strength Backs Expansion

• Analysts expect earnings to grow to $164.4 million by September 2028, up from $27.0 million currently. This suggests substantial free cash flow could be available for reinvestment and buybacks over the next several years.
• According to the analysts' consensus view, Knowles’s strong cash generation and custom product solutions are seen as engines of value creation.
  • New products in medtech and industrial fields are broadening Knowles’s addressable market and helping offset mature sector headwinds.
  • Analysts believe this provides visibility for profit growth and flexibility for potential M&A, even as margin pressures linger.
• Latest financial performance shows disciplined capital allocation could accelerate shareholder returns, but only if Knowles continues to deliver on its operational efficiency promises and margin targets. 📊 Read the full Knowles Consensus Narrative.

Margin Expansion Faces Factory Hurdles

• Profit margins are expected to increase sharply from 4.8% to 24.8% within three years based on analyst forecasts. However, execution risk is heightened as recent results were impacted by a 280 basis point margin decline in MedTech & Specialty Audio due to higher scrap costs and ramp inefficiencies.
• The consensus narrative acknowledges significant upside if operational improvements succeed.
  • Consistent design wins and a pipeline of new products are planned to widen margins. Critics highlight that ongoing operational inefficiencies or further issues in scaling production lines could limit gains.
  • Consensus warns that if the product mix shifts toward lower-margin areas or if manufacturing snags continue, long-term earnings momentum could be undermined despite strong top-line forecasts.

Valuation Premium Puts Growth on Notice

• Knowles trades at a 57.6x price-to-earnings ratio, which greatly exceeds both its own industry (26.9x) and peer group (34.6x). The current share price of $24.00 is well above the DCF fair value of $15.73, raising concern over how much future growth is already reflected.
• Analysts’ consensus view suggests the current share price already captures much of the anticipated growth.
  • With a consensus price target of 26.5, the upside from this level is modest relative to recent high valuations, even if profit targets are met over the next few years.
  • The ongoing premium requires greater confidence that Knowles can achieve its margin and growth goals, making the path to superior returns narrower than headline forecasts might suggest.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Knowles on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your Knowles research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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Despite robust growth forecasts, Knowles’s high valuation and recent operational headwinds create uncertainty about its ability to deliver sustained superior returns.

If you'd like more value for your investment and less worry about overpaying, check out these 877 undervalued stocks based on cash flows to uncover names trading below their intrinsic worth right now.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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