Flex (FLEX)

Global manufacturing solutions provider Flex (NASDAQ:FLEX) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 4% year on year to $6.80 billion. Guidance for next quarter’s revenue was better than expected at $6.8 billion at the midpoint, 0.7% above analysts’ estimates. Its non-GAAP profit of $0.79 per share was 4.3% above analysts’ consensus estimates.

Company Overview

Originally known as Flextronics until its 2016 rebranding, Flex (NASDAQ:FLEX) is a global manufacturing partner that designs, engineers, and builds products for companies across industries from medical devices to solar trackers.

The sector could see higher demand as the prevalence of advanced electronics increases in industries such as automotive, healthcare, aerospace, and computing. The high-performance components and contract manufacturing expertise required for autonomous vehicles and cloud computing datacenters, for instance, will benefit companies in the space. However, headwinds include geopolitical risks, particularly U.S.-China trade tensions that could disrupt component sourcing and production as the Trump administration takes an increasingly antagonizing stance on foreign relations. Additionally, stringent environmental regulations on e-waste and emissions could force the industry to pivot in potentially costly ways.

Flex competes with other contract manufacturers and electronics manufacturing services providers including Jabil (NYSE:JBL), Foxconn (TPE:2317), Sanmina (NASDAQ:SANM), and Celestica (NYSE:CLS). In its Nextracker solar business, competitors include Array Technologies (NASDAQ:ARRY) and various regional solar mounting system manufacturers.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $26.33 billion in revenue over the past 12 months, Flex is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. To expand meaningfully, Flex likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, Flex’s sales grew at a sluggish 2.7% compounded annual growth rate over the last five years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Flex’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.1% annually.

This quarter, Flex reported modest year-on-year revenue growth of 4% but beat Wall Street’s estimates by 1.6%. Company management is currently guiding for a 3.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

Flex’s operating margin has risen over the last 12 months and averaged 3.9% over the last five years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports lousy profitability for a business services business.

Analyzing the trend in its profitability, Flex’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Flex generated an operating margin profit margin of 4.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Flex’s EPS grew at an astounding 19.2% compounded annual growth rate over the last five years, higher than its 2.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Flex, its two-year annual EPS growth of 11.1% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Flex reported adjusted EPS of $0.79, up from $0.64 in the same quarter last year. This print beat analysts’ estimates by 4.3%. Over the next 12 months, Wall Street expects Flex’s full-year EPS of $3.01 to grow 4%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Flex has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.8%, subpar for a business services business.

Taking a step back, an encouraging sign is that Flex’s margin expanded by 2 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Flex’s free cash flow clocked in at $305 million in Q3, equivalent to a 4.5% margin. This result was good as its margin was 1.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Flex’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 15.7%, slightly better than typical business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Flex’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Flex reported $2.25 billion of cash and $3.69 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.03 billion of EBITDA over the last 12 months, we view Flex’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $76 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Flex beat analysts’ full-year EPS guidance expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Overall, this print had some key positives. Investors were likely hoping for more, and shares traded down 3.5% to $62 immediately after reporting.

Updated: December 4, 2025 at 11:02 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Flex’s business quality ultimately falls short of our standards. For starters, its revenue growth was uninspiring over the last five years. And while its scale makes it a trusted partner with negotiating leverage, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its operating margins reveal poor profitability compared to other business services companies.

Flex’s P/E ratio based on the next 12 months is 17.8x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $73.51 on the company (compared to the current share price of $61.10).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.