NN (NNBR)

Industrial components supplier NN (NASDAQ:NNBR) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 12.8% year on year to $105.7 million. The company’s full-year revenue guidance of $445 million at the midpoint came in 2% below analysts’ estimates. Its GAAP loss of $0.23 per share was 15% below analysts’ consensus estimates.

Company Overview

Formerly known as Nuturn, NN (NASDAQ:NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.

Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Barnes (NYSE:B), Timken (NYSE:TKR), and RBC Bearings (NYSE:RBC).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. NN’s demand was weak over the last five years as its sales fell at a 1.3% annual rate. This wasn’t a great result and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. NN’s recent performance shows its demand remained suppressed as its revenue has declined by 5% annually over the last two years.

This quarter, NN missed Wall Street’s estimates and reported a rather uninspiring 12.8% year-on-year revenue decline, generating $105.7 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

NN has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16.4% gross margin over the last five years. That means NN paid its suppliers a lot of money ($83.59 for every $100 in revenue) to run its business.

NN’s gross profit margin came in at 13.3% this quarter, marking a 3.3 percentage point decrease from 16.6% in the same quarter last 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 a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

NN’s high expenses have contributed to an average operating margin of negative 3.8% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, NN’s operating margin decreased by 3 percentage points over the last five years. NN’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.

NN’s operating margin was negative 4.5% this quarter. The company's consistent lack of profits raise a flag.

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.

Although NN’s full-year earnings are still negative, it reduced its losses and improved its EPS by 31.6% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

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

For NN, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q1, NN reported EPS at negative $0.23, up from negative $0.34 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects NN to improve its earnings losses. Analysts forecast its full-year EPS of negative $0.99 will advance to negative $0.65.

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.

NN’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.4%, meaning it lit $1.43 of cash on fire for every $100 in revenue.

Taking a step back, we can see that NN’s margin dropped by 1.1 percentage points during that time. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s in the middle of an investment cycle.

NN burned through $7.25 million of cash in Q1, equivalent to a negative 6.9% margin. The company’s cash burn was similar to its $4.75 million of lost cash in the same quarter last year.

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).

NN’s five-year average ROIC was negative 5.4%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

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, NN’s ROIC averaged 2.9 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

NN reported $11.74 million of cash and $197.9 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 $47.62 million of EBITDA over the last 12 months, we view NN’s 3.9× net-debt-to-EBITDA ratio as safe. We also see its $11.54 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 were impressed by NN’s optimistic full-year EBITDA guidance, which blew past analysts’ expectations. On the other hand, its revenue, EPS, and EBITDA missed, and it lowered its full-year revenue guidance. Overall, this was a weaker quarter. The stock traded down 11.5% to $1.62 immediately after reporting.

Updated: July 10, 2025 at 11:13 PM EDT

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

We cheer for all companies making their customers lives easier, but in the case of NN, we’ll be cheering from the sidelines. To begin with, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

NN’s P/E ratio based on the next 12 months is 319.8x. This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $6.33 on the company (compared to the current share price of $2.20).

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.