B.Riley has adjusted the price target for Napco Security Technologies, Inc. (NASDAQ: NASDAQ:NSSC), lowering it to $32 from the previous $45 while maintaining a Neutral rating on the stock.
The move follows a short report by Fuzzy Panda, which raised concerns about potential accounting fraud and inventory misstatement at Napco.
The report alleged mismanagement of inventories, suggesting a risk of impairment due to a large non-current inventory balance, and pointed to slowing equipment sales that could negatively affect the company's service revenue growth rates.
The short report also questioned the company's ability to meet its long-term sales targets and highlighted the hiring of accounting personnel from Napco's former auditing firm. In response,
Napco issued a statement on September 6, before the market open, refuting the allegations and providing details about the hiring of its Chief Accounting Officer from Baker Tilly. Management also addressed concerns about not meeting its $150 million equipment and service sales target by 2026, indicating that reaching this goal might take slightly longer than initially planned.
The report further highlighted a high valuation of 9x revenue for Napco, despite what it described as a lack of pricing power and slowing equipment sales.
B. Riley acknowledged Napco's decelerating alarm sales as a potential future risk to its recurring revenue stream. Since the company's fourth-quarter earnings call on August 23, Napco's stock has experienced a significant drop of 38%, compared to a 5.8% decline in the Russell 2000 index.
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