Should Investors Buy PLXS as Growth Accelerates but Cash Flow Weakens?

Plexus Corp. PLXS is producing faster revenue growth, higher earnings and wider margins as new programs ramp across its end markets. The operating momentum is clear, but the stock already reflects high expectations.

A richer valuation and a weaker near-term free cash flow outlook make the buy decision less straightforward. Investors must weigh improving execution against limited room for delays, working-capital pressure or slower margin gains.

Plexus Growth Is Accelerating Sharply

Fiscal third-quarter revenues increased 28.1% year over year to $1.305 billion. Adjusted earnings of $2.32 per share topped the Zacks Consensus Estimate of $2.10 and rose from $1.90 in the year-ago quarter.

Adjusted operating margin expanded 30 basis points to 6.3%. The improvement shows that higher sales are supporting profitability rather than merely adding volume, while 31 manufacturing program wins provide additional growth visibility.

PLXS Guidance Raises the Growth Bar

Plexus expects fiscal fourth-quarter revenues of $1.33 billion to $1.38 billion and non-GAAP earnings of $2.47-$2.63 per share. Adjusted operating margin is projected between 6.1% and 6.5%.

Plexus Corp. Revenue (Quarterly YoY Growth)

Plexus Corp. revenue-quarterly-yoy-growth | Plexus Corp. Quote

Management now anticipates fiscal 2026 revenue growth above 20% and adjusted operating margin above 6%. Fiscal 2027 revenue growth is expected to exceed the company’s 9%-12% goal, with further margin expansion.

Plexus Valuation Prices in Strong Execution

PLXS trades at 30.09X forward 12-month earnings, above the sub-industry’s 22.78X and its five-year median of 18.4X. That premium leaves less room for program delays, weaker customer demand or slower-than-planned margin improvement.

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Jabil Inc. JBL is a relevant industry reference because its recent company commentary cites demand in capital equipment, cloud and data-center infrastructure. Sanmina Corporation SANM, another integrated manufacturing provider, serves industrial, medical, defense and aerospace, communications and cloud infrastructure markets.

PLXS Cash Flow and Concentration Temper the Case

The stronger outlook requires more working capital and capacity investment. Management now expects fiscal 2026 free cash flow usage, reversing its earlier projection for $50-$75 million of generation, before a return to meaningful generation early in fiscal 2027.

Plexus Corp. Free Cash Flow (Quarterly)

Plexus Corp. free-cash-flow-quarterly | Plexus Corp. Quote

Customer concentration adds execution risk. The top 10 customers generated 55% of fiscal third-quarter revenues, raising the potential impact of order delays, program losses or weaker spending by a major account.

Plexus Returns Still Support the Thesis

After-tax return on invested capital reached 14.9% in the fiscal third quarter, compared with a weighted average cost of capital of 9%. The spread indicates that recent investments are creating economic value despite the heavier near-term funding needs.

Plexus ended the quarter with $314.1 million in cash and cash equivalents and $91.6 million in long-term debt and finance lease obligations, net of the current portion. It also repurchased $20.6 million of shares, with $21.4 million remaining under its authorization.

PLXS Signals Favor Patience Over Chasing

The bottom line is that accelerating growth and improving returns support holding PLXS, but valuation and cash flow risks argue against chasing the stock after its sharp advance.

PLXS carries a Zacks Rank #3 (Hold). The ranking can support retaining an existing position, while the preferred new-buy combinations generally pair a Zacks Rank #1 or #2 with favorable Style Scores.

The stock has a Value Score of C, Growth Score of D, Momentum Score of A and VGM Score of D. The Momentum Score points to favorable price trends, but the weaker growth and composite readings limit broad-based confirmation. Waiting for a better entry point or clearer free cash flow improvement looks more balanced than an aggressive purchase.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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