Sanmina (SANM)

Electronics manufacturing services company Sanmina (NASDAQ:SANM) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 3.9% year on year to $2.10 billion. On top of that, next quarter’s revenue guidance ($3.05 billion at the midpoint) was surprisingly good and 43.3% above what analysts were expecting. Its non-GAAP profit of $1.67 per share was 6.7% above analysts’ consensus estimates.

Company Overview

Founded in 1980, Sanmina (NASDAQ:SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.

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 Sanmina in the electronics manufacturing services (EMS) industry include Flex (NASDAQ:FLEX), Javil (NYSE:JBL), and Celestica (NYSE:CLS).

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. Over the last five years, Sanmina grew its sales at a sluggish 3.2% compounded annual growth rate. 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. Sanmina’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.6% annually. Sanmina isn’t alone in its struggles as the Electrical Systems industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Sanmina reported modest year-on-year revenue growth of 3.9% but beat Wall Street’s estimates by 2.2%. Company management is currently guiding for a 52% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 7.4% 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.

Sanmina has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 8.3% gross margin over the last five years. Said differently, Sanmina had to pay a chunky $91.73 to its suppliers for every $100 in revenue.

In Q3, Sanmina produced a 9.1% gross profit margin, 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 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.

Sanmina’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 4.6% over the last five years. This profitability was lousy for an industrials business and caused by its suboptimal cost structureand low gross margin.

Looking at the trend in its profitability, Sanmina’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.

In Q3, Sanmina generated an operating margin profit margin of 3.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been 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.

Sanmina’s EPS grew at a remarkable 14.5% compounded annual growth rate over the last five years, higher than its 3.2% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

Diving into Sanmina’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Sanmina has repurchased its stock, shrinking its share count by 20.3%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

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 Sanmina, its two-year annual EPS declines of 1.2% mark a reversal from its (seemingly) healthy five-year trend. We hope Sanmina can return to earnings growth in the future.

In Q3, Sanmina reported adjusted EPS of $1.67, up from $1.43 in the same quarter last year. This print beat analysts’ estimates by 6.7%. Over the next 12 months, Wall Street expects Sanmina’s full-year EPS of $6.05 to grow 15.5%.

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.

Sanmina 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 3.1%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Sanmina’s margin expanded by 1.9 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 was flat.

Sanmina’s free cash flow clocked in at $136.8 million in Q3, equivalent to a 6.5% margin. This result was good as its margin was 5.2 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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Sanmina hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 17%, impressive for an industrials 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, Sanmina’s ROIC averaged 2.1 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Sanmina is a profitable, well-capitalized company with $926.3 million of cash and $300.5 million of debt on its balance sheet. This $625.8 million net cash position is 8.6% 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.

We were impressed by Sanmina’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its revenue guidance for next quarter trumped Wall Street’s estimates. On the other hand, its EBITDA missed. Overall, we think this was a very good quarter with some key metrics above expectations. The stock traded up 9.5% to $153.95 immediately after reporting.

Updated: December 3, 2025 at 10:21 PM EST

Before making an investment decision, investors should account for Sanmina’s business fundamentals and valuation in addition to what happened in the latest quarter.

Sanmina isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue growth was weak 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 low gross margins indicate some combination of competitive pressures and high production costs. On top of that, its low free cash flow margins give it little breathing room.

Sanmina’s P/E ratio based on the next 12 months is 16x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $190 on the company (compared to the current share price of $157.78).

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.