Knowles (KN)

Electronic components manufacturer Knowles (NYSE:KN) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 7.3% year on year to $152.9 million. Guidance for next quarter’s revenue was better than expected at $156 million at the midpoint, 1.1% above analysts’ estimates. Its non-GAAP profit of $0.33 per share was 7.3% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1946 and a focus on components that must perform flawlessly in critical situations, Knowles (NYSE:KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical technology, defense, and industrial applications.

The sector could see higher demand as the prevalence of advanced electronics increases in industries such as automotive, healthcare, aerospace, and computing. The high-performance components and contract manufacturing expertise required for autonomous vehicles and cloud computing datacenters, for instance, will benefit companies in the space. However, headwinds include geopolitical risks, particularly U.S.-China trade tensions that could disrupt component sourcing and production as the Trump administration takes an increasingly antagonizing stance on foreign relations. Additionally, stringent environmental regulations on e-waste and emissions could force the industry to pivot in potentially costly ways.

Knowles' Precision Devices segment competes with electronic component manufacturers like Kyocera AVX, Yageo Corporation (which owns Kemet products), and Vishay Intertechnology (NYSE:VSH), along with various specialty companies. In the Medtech & Specialty Audio segment, its primary competitor is Sonion.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $573.5 million in revenue over the past 12 months, Knowles is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.

As you can see below, Knowles’s demand was weak over the last five years. Its sales fell by 3.7% annually, a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Knowles’s annualized revenue declines of 4% over the last two years align with its five-year trend, suggesting its demand has consistently shrunk.

This quarter, Knowles reported year-on-year revenue growth of 7.3%, and its $152.9 million of revenue exceeded Wall Street’s estimates by 2.6%. Company management is currently guiding for a 9.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will spur better top-line performance.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Knowles has managed its cost base well over the last five years. It demonstrated solid profitability for a business services business, producing an average operating margin of 12%.

Looking at the trend in its profitability, Knowles’s operating margin decreased by 1.1 percentage points over the last five years. Even though its historical margin was healthy, shareholders will want to see Knowles become more profitable in the future.

In Q3, Knowles generated an operating margin profit margin of 16.9%, up 2.7 percentage points year on year. This increase was a welcome development and shows it was more efficient.

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.

Knowles’s EPS grew at a remarkable 10.8% compounded annual growth rate over the last five years, higher than its 3.7% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.

Diving into Knowles’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Knowles has repurchased its stock, shrinking its share count by 5.6%. 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 Knowles, its two-year annual EPS growth of 5.3% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Knowles reported adjusted EPS of $0.33, up from $0.26 in the same quarter last year. This print beat analysts’ estimates by 7.3%. Over the next 12 months, Wall Street expects Knowles’s full-year EPS of $1.02 to grow 21.1%.

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.

Knowles has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 15.8% over the last five years.

Taking a step back, we can see that Knowles’s margin expanded by 1.7 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.

Knowles’s free cash flow clocked in at $21.4 million in Q3, equivalent to a 14% margin. The company’s cash profitability regressed as it was 20.5 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

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).

Knowles historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.3%, somewhat low compared to the best business services companies that consistently pump out 25%+.

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, Knowles’s ROIC averaged 2 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Knowles reported $92.5 million of cash and $197 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 $129.8 million of EBITDA over the last 12 months, we view Knowles’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $6.3 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 enjoyed seeing Knowles beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The market seemed to be hoping for more, and the stock traded down 1.9% to $23.56 immediately after reporting.

Updated: December 3, 2025 at 10:46 PM EST

Are you wondering whether to buy Knowles or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Knowles doesn’t pass our quality test. To kick things off, its revenue has declined over the last five years. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its subscale operations give it fewer distribution channels than its larger rivals. On top of that, its mediocre ROIC lags the market and is a headwind for its stock price.

Knowles’s P/E ratio based on the next 12 months is 19x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $26.50 on the company (compared to the current share price of $23.02).

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.