Plexus Q2 revenue hits record, EPS beats; but valuation remains stretched

What happened

Plexus reported fiscal Q2 revenue of $1.164B, a record for the quarter, and GAAP EPS of $1.82, both exceeding prior run rates. The results reflect initial conversion of the ~$941M FY25 manufacturing wins, though GAAP operating margin of 5.3% remains below the non-GAAP target of ~6%. Management's upcoming Q3 guidance will be critical to assess whether this growth trajectory can sustain the 9-12% long-term model. The master report had flagged low revenue growth and high valuation as risks, and this quarter's performance partially alleviates those concerns. However, the stock at ~28x trailing earnings already prices in continued acceleration, leaving limited margin for error.

Implication

The record Q2 revenue and EPS provide evidence that Plexus' program win funnel is finally translating into growth, supporting a potential reassessment of the investment thesis. However, the stock's current valuation (~28x P/E) already embeds this success, and investors should monitor whether the company can sustain operating margins above 5.5% and deliver on FY26 free cash flow guidance of ~$100M. Given the risk of multiple compression if growth decelerates, we maintain a cautious stance until further proof of durable high-single-digit growth. The attractive entry price of $150 identified in the master report may now be behind us, but the base case value of $170 offers limited upside from current levels near $180. For long-term investors, accumulating on any pullback toward $160-170 could provide a better risk/reward.

Thesis delta

The Q2 results mark a positive inflection in revenue growth after years of low-single-digit expansion, increasing the probability that the bull case (20% chance, $210 value) materializes. However, the stock has already rerated from $140 to $180 over the past three months, discounting much of this improvement. The key shift is that execution risk has decreased modestly, but valuation risk has increased commensurately, leading to a more balanced but still cautious outlook.