Plexus Corp. PLXS is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 22.75X, which positions it at a premium compared to the industry’s average of 18.69X and the S&P 500's 21.78.
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The stock’s recent gains might have contributed to its elevated P/E multiple. Shares of PLXS have rallied 42.9% over the past six months, outpacing the industry’s and the S&P 500's growth of 37.7% and 3.8%, respectively.
Price Performance
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Plexus has also outperformed some of its peers like Flex Corporation FLEX and Jabil Inc JBL, which have gained 32.8% and 33.5%, respectively. However, Celestica CLS has appreciated 69.3% in the same time frame. PLXS closed the last trading session at $161.20, below its 52-week high of $170.07.
Often, premium valuation signals investor optimism surrounding long-term growth. Though high PE multiple might be a concern for some value-focused investors, it’s essential to consider whether the fundamentals justify the price. Now, the question arises: Is PLXS a buy, hold or sell at its current valuation?
A Look at PLXS Fundamentals & Key Growth Catalysts
Neenah, WI-based Plexus is a leading provider of electronic contract manufacturing services to original equipment manufacturers in a wide range of industries, including Healthcare/Life Sciences, Industrial and Aerospace/Defense market sectors.
New program ramp activities and healthy demand in the Aerospace/Defense unit are driving stock price appreciation.
We believe a healthy number of program wins will drive the top-line performance. In the fourth quarter of fiscal 2024, Plexus won 26 manufacturing programs, representing $230 million in annualized revenues when fully ramped into production. It ended fiscal 2024 with manufacturing program wins exceeding $1 billion, including $568 million from the Healthcare/Life Sciences sector. The funnel of qualified manufacturing opportunities is pegged at $3.5 billion, indicating a strong pipeline for growth.
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Plexus expects new program ramps across all three segments to aid fiscal 2025 revenue growth. The Industrial segment is also likely to gain from strength in the SemiCap market, offsetting near-term industrial demand uncertainty. The Healthcare business is likely to gain from the expected improvement in end markets, along with the normalization of inventories. Given its exposure to high-growth segments and recent improvements seen in health care, industrial, commercial and defense/aerospace sectors, the company will outgrow its peers in the EMS group in the long term.
Momentum in the Aerospace and Defense sector is another tailwind for Plexus. In the fiscal fourth quarter, revenues from Aerospace/Defense increased 16.5% year over year to $184 million, contributing 18% to total revenues. Fiscal 2024 revenue growth of 21% exceeded the 17% growth witnessed in fiscal 2023, driven by demand for its engineering solutions.
Though revenues in the fiscal first quarter are forecast to decline in the high single digits, management expects continued growth for the Aerospace/Defense sector in fiscal 2025. Strength in new program ramps, and the space and defense subsector remain the primary catalysts. Plexus also expects uncertainty within the commercial aerospace subsector to resolve as the year progresses.
PLXS’ Strong Cash Flow & Buybacks
Plexus generated $341 million in free cash flow for fiscal 2024, with $194 million in free cash flow generated in the fiscal fourth quarter. The free cash flow performance was driven by strong operating results, effective working capital management and strategic investments.
Strong cash flow is aiding the company to reduce debt and support its share repurchase program. PLXS paid off debt worth $184 million in the fiscal year.
Plexus repurchased $55.7 million of the company’s shares at an average price of $104 per share under its repurchase program. Plexus’ board of directors approved an additional $50 million share repurchase plan in August 2024.
Going ahead, PLXS expects cash usage for the fiscal first quarter due to higher investments to support revenue growth for fiscal 2025. Despite this usage, PLXS expects free cash flow in the range of $50 million to $100 million for fiscal 2025.
Is PLXS Still a Buying Opportunity or an Expensive Bet?
PLXS’ robust performance, favorable demand trends and strong capital allocation strategy position it as an attractive investment opportunity. The stock’s technical indicators suggest that there could be further upside. The stock has been trading above both the 50-day and 100-day moving averages, indicating that investors are bullish on the stock.
50 &100-Day Moving Average
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Although PLXS trades at a premium, its elevated price-to-earnings ratio reflects investor optimism surrounding long-term growth. While some investors may consider locking in gains after a significant price appreciation, those with a growth-oriented strategy could find this Zacks Rank #2 (Buy) stock still compelling, especially if it breaks through its 52-week high, signaling bullish momentum. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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