Flex Q3 Earnings Likely Reinforce Overvaluation Amid Thin Margins

What happened

Flex reported its Q3 earnings for the quarter ended December 2025, with analysis focusing on key metrics versus Wall Street estimates and prior-year figures. According to the DeepValue master report, Flex has faced flat to declining revenues in recent years, with FY25 net sales of $25.8 billion and thin net margins around 3%, typical of the competitive EMS industry. The stock has surged approximately 65% over the past 12 months to $63.68, trading at rich valuations of P/E ~28x and EV/EBITDA ~14x, about 74% above the DCF-based intrinsic value of $36.64. The Q3 earnings likely reflect these persistent challenges, with any performance metrics needing scrutiny for sustainability beyond temporary factors. Investors should critically assess whether the report indicates durable margin improvements or merely perpetuates the volatility and overvaluation highlighted in the master report.

Implication

The earnings report validates the DeepValue judgment that Flex trades at a premium with limited margin of safety, given its cyclical and capital-intensive business model. Thin margins and revenue stagnation make it hard to justify current multiples, especially amid geopolitical risks like the Ukraine facility impairment and competitive pressures. Any positive surprises are likely already priced in, with high risk of correction if future performance disappoints elevated expectations. For value investors, the stock offers poor risk/reward unless evidence emerges of sustained free cash flow above $1 billion annually and net margins stabilizing above 3-3.5%. Therefore, the implication is to avoid new exposure and consider profit-taking, aligning with the 'POTENTIAL SELL' stance until valuation better matches fundamentals.

Thesis delta

The Q3 earnings report does not materially shift the thesis; it reinforces the view that Flex is overvalued given its operational challenges and industry dynamics. Any shift would require sustained improvements in revenue growth and margin durability, but historical volatility and current rich pricing suggest caution remains warranted.