Transcat (TRNS)

Measurement equipment distributor Transcat (NASDAQ:TRNS) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 21.3% year on year to $82.27 million. Its non-GAAP profit of $0.44 per share was 9.1% below analysts’ consensus estimates.

Company Overview

Serving the pharmaceutical, industrial manufacturing, energy, and chemical process industries, Transcat (NASDAQ:TRNS) provides measurement instruments and supplies.

Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Maintenance and repair distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is still a real threat, forcing investment in omnichannel capabilities to serve customers everywhere. Additionally, maintenance and repair distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.

Competitors offering similar products include Keysight (NYSE:KEYS), Ametek (NYSE:AME), and Fortive (NYSE:FTV).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Transcat’s 12.3% annualized revenue growth over the last five years was excellent. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Transcat’s annualized revenue growth of 11.6% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, Transcat reported robust year-on-year revenue growth of 21.3%, and its $82.27 million of revenue topped Wall Street estimates by 3.5%.

Looking ahead, sell-side analysts expect revenue to grow 11.5% over the next 12 months, similar to its two-year rate. This projection is healthy and implies the market is forecasting success for its products and services.

Transcat’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand. As you can see below, it averaged a decent 30.8% gross margin over the last five years. That means for every $100 in revenue, roughly $30.85 was left to spend on selling, marketing, R&D, and general administrative overhead.

In Q3, Transcat produced a 32.5% gross profit margin, up 1.3 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Transcat was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.9% was weak for an industrials business.

Looking at the trend in its profitability, Transcat’s operating margin decreased by 2.5 percentage points 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. Transcat’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, Transcat generated an operating margin profit margin of 4.3%, down 1.2 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.

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.

Transcat’s EPS grew at a spectacular 17.3% compounded annual growth rate over the last five years, higher than its 12.3% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t improve and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

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.

Transcat’s two-year annual EPS growth of 2.7% was subpar and lower than its 11.6% two-year revenue growth.

Diving into the nuances of Transcat’s earnings can give us a better understanding of its performance. Transcat’s operating margin has declined over the last two yearswhile its share count has grown 18.3%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, Transcat reported adjusted EPS of $0.44, down from $0.52 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Transcat’s full-year EPS of $2.12 to grow 9.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Transcat has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.1% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that Transcat’s margin expanded by 2.3 percentage points during that time. This shows the company is 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 fell.

Transcat’s free cash flow clocked in at $8.45 million in Q3, equivalent to a 10.3% margin. This result was good as its margin was 6 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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Transcat historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.4%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

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. Unfortunately, Transcat’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Transcat reported $5.08 million of cash and $143.8 million 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 $44.54 million of EBITDA over the last 12 months, we view Transcat’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $381,000 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 Transcat beat analysts’ revenue expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its EPS missed. Overall, this print had some key positives. The stock traded up 3.7% to $73 immediately after reporting.

Updated: December 4, 2025 at 10:04 PM EST

Before investing in or passing on Transcat, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Transcat isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was impressive over the last five years and Wall Street believes it will continue to grow, its diminishing returns show management's prior bets haven't worked out. And while the company’s spectacular EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking.

Transcat’s P/E ratio based on the next 12 months is 26.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $103.67 on the company (compared to the current share price of $53.67).

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.