Methode Electronics (MEI)

Custom-engineered solutions manufacturer Methode Electronics (NYSE:MEI) reported Q4 CY2025 results exceeding the market’s revenue expectations, but sales fell by 2.6% year on year to $233.7 million. The company’s full-year revenue guidance of $975 million at the midpoint came in 2.5% above analysts’ estimates. Its non-GAAP loss of $0.37 per share was 85% below analysts’ consensus estimates.

Company Overview

Founded in 1946, Methode Electronics (NYSE:MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Competitors of Methode Electronics include Amphenol Corporation (NYSE: APH), TE Connectivity Ltd. (NYSE: TEL), and Molex Incorporated (NASDAQ: MOLX).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Methode Electronics struggled to consistently increase demand as its $978.2 million of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Methode Electronics’s recent performance shows its demand remained suppressed as its revenue has declined by 7.3% annually over the last two years.

This quarter, Methode Electronics’s revenue fell by 2.6% year on year to $233.7 million but beat Wall Street’s estimates by 6.5%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

Methode Electronics has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 19.6% gross margin over the last five years. That means Methode Electronics paid its suppliers a lot of money ($80.44 for every $100 in revenue) to run its business.

Methode Electronics produced a 16.6% gross profit margin in Q4, in line with the same quarter last year. Zooming out, Methode Electronics’s full-year margin has been trending down over the past 12 months, decreasing by 1.5 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Methode Electronics was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.1% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Methode Electronics’s operating margin decreased by 13.7 percentage points over the last five years. Methode Electronics’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.

This quarter, Methode Electronics generated an operating margin profit margin of negative 2.6%, down 1.7 percentage points year on year. Since Methode Electronics’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Methode Electronics, its EPS declined by 20.4% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

We can take a deeper look into Methode Electronics’s earnings to better understand the drivers of its performance. As we mentioned earlier, Methode Electronics’s operating margin declined by 13.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Methode Electronics, its two-year annual EPS declines of 23,631,469,465% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q4, Methode Electronics reported adjusted EPS of negative $0.37, down from negative $0.21 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Methode Electronics’s full-year EPS of negative $1.55 will flip to positive $0.23.

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.

Methode Electronics has shown weak cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 3.3%, below what we’d expect for an industrials business.

Methode Electronics’s free cash flow clocked in at $10.1 million in Q4, equivalent to a 4.3% margin. The company’s cash profitability regressed as it was 3.8 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

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).

Methode Electronics historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.6%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

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

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Methode Electronics’s $364.1 million of debt exceeds the $133.7 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $33.5 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Methode Electronics could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Methode Electronics can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by how significantly Methode Electronics blew past analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance exceeded Wall Street’s estimates. On the other hand, its full-year EBITDA guidance missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded up 5.4% to $7.94 immediately after reporting.

Updated: March 5, 2026 at 4:40 PM EST

When considering an investment in Methode Electronics, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Methode Electronics falls short of our quality standards. To begin with, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. While its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Methode Electronics’s P/E ratio based on the next 12 months is 32.8x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $9.25 on the company (compared to the current share price of $7.94).

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.