Richardson Electronics Q2 2026 Earnings: Growth Without Leverage Confirms Wait Thesis

What happened

Richardson Electronics reported Q2 2026 earnings, achieving a sixth consecutive quarter of net sales growth led by double-digit increases in Green Energy Solutions (GES) and Canvys, while Power & Microwave Technologies (PMT) saw a slight decline. Despite revenue growth, operating income remained marginal, resulting in a net loss, underscoring the company's inability to translate top-line gains into profitability. Gross margins modestly compressed in GES and PMT due to mix shifts and under-absorption, revealing persistent inefficiencies despite management's focus on engineered solutions. The backlog increased to $135.7 million, driven by PMT, but GES backlog dipped slightly after strong shipments, indicating ongoing project volatility rather than sustained demand. Overall, these results highlight steady niche demand but reinforce concerns about weak operating leverage and earnings power at current valuation levels.

Implication

The Q2 earnings confirm that Richardson's revenue growth, while consistent, fails to deliver operating leverage, keeping EPS depressed and validating the DeepValue report's wait rating. High inventory levels, at over $100 million, continue to pose obsolescence risks that could erode book value, the primary margin of safety. Until FY26 run-rate EPS reaches at least $0.40 with stable gross margins above 31%, the current price near 0.8x book offers limited upside compared to potential downside from inventory write-downs or demand softness. Investors are better served waiting for a pullback toward $9, representing 0.6-0.7x book, or clearer evidence from Q3 that semi wafer-fab acceleration and GES mix improvements can drive sustainable profits. This patience aligns with the report's 6-12 month re-assessment window, avoiding overpayment for a balance-sheet story that lacks earnings inflection.

Thesis delta

The Q2 earnings do not materially shift the investment thesis; they reinforce the existing wait rating by demonstrating that revenue growth alone is insufficient to drive meaningful earnings or margin expansion. This confirms the need for either a lower entry price or tangible proof of operating leverage, as outlined in the DeepValue report's scenarios, before considering an increase in exposure.