Richardson Electronics (RELL)

Electronics distributor Richardson Electronics (NASDAQ:RELL) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 1.6% year on year to $54.61 million. Its GAAP profit of $0.13 per share was significantly above analysts’ consensus estimates.

Company Overview

Founded in 1947, Richardson Electronics (NASDAQ:RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.

Historically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.

Competitors in the electronic distribution industry include Arrow Electronics (NYSE:ARW), Avnet (NASDAQ:AVT), and TTM Technologies (NASDAQ:TTMI).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Richardson Electronics’s 6.4% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Richardson Electronics’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 8% annually.

Richardson Electronics also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Richardson Electronics’s backlog reached $134.7 million in the latest quarter and averaged 2% year-on-year declines over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Richardson Electronics’s products and services but raises concerns about capacity constraints.

This quarter, Richardson Electronics reported modest year-on-year revenue growth of 1.6% but beat Wall Street’s estimates by 6%.

Looking ahead, sell-side analysts expect revenue to grow 5.2% 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.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Richardson Electronics’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 31.5% gross margin over the last five years. Said differently, Richardson Electronics paid its suppliers $68.48 for every $100 in revenue.

Richardson Electronics’s gross profit margin came in at 31% this quarter, in line with 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 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.

Richardson Electronics was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.5% was weak for an industrials business.

Looking at the trend in its profitability, Richardson Electronics’s operating margin decreased by 3.3 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. Richardson 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, Richardson Electronics generated an operating margin profit margin of 1.8%, up 1.2 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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.

Richardson Electronics broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, an encouraging sign is that Richardson Electronics’s margin expanded by 5.9 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 fell.

Richardson Electronics broke even from a free cash flow perspective in Q3. This result was good as its margin was 1.6 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Richardson Electronics is a profitable, well-capitalized company with $35.65 million of cash and $2.03 million of debt on its balance sheet. This $33.63 million net cash position is 23.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

Richardson Electronics beat analysts’ expectations across this quarter, and the beats were quite large and convincing. Management pointed out that a "more profitable sales mix, combined with our continued focus on controlling fixed costs, drove a significant improvement in operating income, that more than tripled from the prior year’s first quarter." This was a very good quarter. The stock traded up 24.4% to $13.15 immediately after reporting.

Updated: December 3, 2025 at 10:48 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Richardson Electronics.

We see the value of companies helping their customers, but in the case of Richardson Electronics, we’re out. For starters, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

Richardson Electronics’s P/E ratio based on the next 12 months is 58.9x. At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $12.50 on the company (compared to the current share price of $10.81).

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.