Security systems manufacturer Napco (NASDAQ: NSSC) met Wall Street’s revenue expectations in Q1 CY2026, with sales up 11.8% year on year to $49.17 million. Its GAAP loss of $0.01 per share was significantly below analysts’ consensus estimates.

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Richard Soloway, Chairman and CEO, commented, "Our Fiscal Q3 performance reflects positive financial results, including record Q3 Adjusted EBITDA of $15.8 million, which was sustained by our recurring service revenue with its continued year over year double digit growth, and the consistent demand for our door-locking products that drove growth in our equipment revenue and improved equipment gross margins, which increased to approximately 29%. Our RSR continues to sustain gross margins of over 90%, represents approximately 51% of total revenue in Q3, and has a prospective run rate of approximately $101 million based on our April 2026 recurring service revenue. Our revenue growth and margin expansion resulted in a 37% increase in Non-GAAP net income, a 20% increase in Adjusted EBITDA and our adjusted EBITDA margin was 32.2% as compared to 29.9% in Q3 of Fiscal 2025.

Company Overview

Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ: NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $197.2 million in revenue over the past 12 months, Napco 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. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Napco’s 14.2% annualized revenue growth over the last five years was exceptional. This is a great starting point for our analysis because it shows Napco’s demand was higher than many business services companies.

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. Napco’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.8% over the last two years was well below its five-year trend.

This quarter, Napco’s year-on-year revenue growth was 11.8%, and its $49.17 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 9.8% over the next 12 months, an improvement versus the last two years. This projection is healthy and indicates its newer products and services will fuel better top-line performance.

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Adjusted Operating Margin

Adjusted 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 because it excludes non-recurring expenses, interest on debt, and taxes.

Napco has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average adjusted operating margin of 22.3%.

Analyzing the trend in its profitability, Napco’s adjusted operating margin rose by 7.5 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q1, Napco generated an adjusted operating margin profit margin of negative 1.8%, down 28.1 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Earnings Per Share

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.

Napco’s EPS grew at 36.4% compounded annual growth rate over the last five years, higher than its 14.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Napco’s earnings to better understand the drivers of its performance. As we mentioned earlier, Napco’s adjusted operating margin declined this quarter but expanded by 7.5 percentage points over the last five years. Its share count also shrank by 3.1%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

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 Napco, its two-year annual EPS declines of 9.1% mark a reversal from its (seemingly) healthy five-year trend. These shorter-term results weren’t ideal, but given it was successful in other measures of financial health, we’re hopeful Napco can return to earnings growth in the future.

In Q1, Napco reported EPS of negative $0.01, down from $0.28 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Napco’s full-year EPS of $1.04 to grow 48.2%.

Key Takeaways from Napco’s Q1 Results

We struggled to find many positives in these results. Overall, this was a weaker quarter. The stock traded up 6% to $49.55 immediately following the results.

So do we think Napco is an attractive buy at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here (it’s free).