Napco Stock Plummets As Fears Rise About Fraud
Niche NY security manufacturer Napco's stock has quietly quadrupled over the years, but now a new financial filing from the company has caused the stock to plummet and raised fears about the risk of fraud.
In this note, we examine Napco's financials, their stock's strong growth over the last 5 years, what the specific issue is, and why some investors fear the risk of fraud.
Stock ********
*****'* ***** *** ********* **** ***% in *** **** **** *****, ********* a ****** ************** ** **** $*.* billion:
*******, *** *******'* ***** ** **** 40%*****, **** *** ****** ************** ********* to **** $*** *******, ****** ~$*** million:
Cost ** ***** **** ***** *** ** ***** ******, *** ****** ************
***** ****** *** **** ** ***** sold *** ************** ** **** ********* earnings ** *** ******* ****** ** account *** "******* ********** **** ************"** *** ***** ******* **** ******.
***** ****** ******** ** ************* ********** inventory, ***** ******, ********* ******, *** net ******. *** *********** *** *****'* net ****** *** *** ****** **** of **** ** ****:
*******, ** ***** ***** ********, *** had **%+ ******** ************, ***** *** first ******* ** **** ******** **** was **** ******** **** ** **** ~10%.
***** ****** **** ** *********** ********* costs, ***** **** *** ******** ** their *********** ***** ********** *** *************** costs ***********, ********* ** *********** **** profits:
****** *** *********** ** *** *******'* consolidated ********* ********** *** *** ****** year ***** **** **, ****, ********** of *** ******* ********** ******* ****** related ** *** *******'* *********** ** cost ** ***** **** ("****") *** inventory *** **** ** *** ***** three ******** ** ****** ****.
************, ******** ***costs ** ******* ********** ********** ************* during fiscal 2023, the Company's costing procedures did not appropriately account for such fluctuations. As a result, inventories **** ********** *** **** *** ***********, resulting in overstated gross profit, operating income and net income for each period. [Emphasis added]
[*****'* ****** ** **** *** ******* - ***** ****]
** ******* *********** *** *** **** provided ** *** ******* ***** *** or *** ***** ********* ***** **** miscalculated.
*** ******* **** ** ** ********* amended ***** **-* *** *** ***** quarters **** **** **** ** ***** 2023. ** ******* ** "**** **** amendments ** **** ** ********** *********** after *** *********** ******* ** *********."
*** ***** ****** ***** ******* *** not ******** ** ** ******** ** these ************, *** ******* **** ** its ***** *******.
Fraud ****
**** ***** ***** ** **** ***** over *** ***** ********* ********** *********** and *********** **** **** ************ ***** to ** **********. *** *******,*** **** ****** ******* ******** ** Toshiba's ********** ***** ** ****,***** ******** ************ **** ***** ****, *************** **** **** ********** ********* *****.
*** ****** ***** ** **** ***** is **** ********* ******** ** ***** profits ************.
**** ** *** ***** ** ********** cases ** *** ******** ********.
Analysts *** *****
*****'* ********* ************** ******** ********* ******** ** ***** its ***** ******* **** "***" ** "neutral" ** **** "**********" ** "****** perform."
******* *** ****** **** ********** **** B. ***** **** **** ******* ***** Napco's ******:
******* *****, *** **** ******* ********* for ***** ***** ******** ** ** from $**** ** $**** *** ***. EBITDA **** $*** ** $***. ** lowered *********, ***** ****** ** ** FY24E **** *** *** ***** ******, a *********** ******* ** *** ***** at ** ******** *** ***.
Fraud ************* **** *** *****
******* **** *******, * *** ***** have ********* ************** **** *****'* ********* results. "***** & ******* ** ****************** ******** ************, ***. (******: ****) for ********* ********** *** **********." ************, "**** ****** *** ** ************* ********* securities *********** ** ****** ** ********** ** NAPCO ******** ************, ***. ("*****") ****** stock (******:****)."
Financial ********
***** *** **** ********* ********* ****-**** projections, ********** * ******* **** *** the *******. *** **** ********** ******* a **% **** ** ***** ******* and * **% **** ** ********* revenue, **** ************* ****:
*** *******'* **** *** ~*.*% *** the *-**** ****** ******* **** - 2022. ** *** **** ****** ****-**** financial *********, ***** **** ~$*** ******* in *** ***** ** *** *-**** period ******* **** **** - **** 2022, * ~**% *** ******.
** **** *******, ***** *********** *** recurring ******* ****** ** **% **** in *** **** * ***** ** its********** ****:
***** ******** * ***** ** ******* in *** **** ***** ***** ** its ********** ****. *******, ** ****** be ***** **** ***** *** **** adjustment, *** **** ****** **** ** lower **** *** *** ***** *****.
*** *******'* ***** ****** *** **** steady ** **%+ ** *** **** 6 *****, *** *** *** ****** margin ******** **** 2 ***** *** ** ~**% ** the **** * *****.
***** *** ** **** *** *** ~$67 ******* ** ****, **** ***********, investments, *** ********** **********.
Fraud ****
** ** *** **** ******, *** has ***** ********* ******, ** **** whether **** ** ***** ** ****** an ********** *****.
** *** *** ****, ****** ***** issues *** ********* ********* ******* *** a ******* ****** ** ********** ********* in *** **** ****. ** ****, it ** ******** **** **** *** this ***** ****** **** *******. *** example, *** **** **** ** *** three ******** ********, *** **** ****** one *** *** ******** *********** ***** be ****** ** ********** **** ***** an ***** ****** *** ****** ***** problems ** ****.
** *** ***** ****, ** ********** cases **** *** *** ***** ***** price ******* *********, ** ** **** possible **** **** *** *** ****** an *****.
** **** ** ****** **** ********* as ***** ********* **** ******** ***********.
******* ***** *** **** ******* ** Latch, *.*.***** ****** ***** ********************* ******* *****, ****** **** "******", More ******, *.*.
** **** *** ******, *********** ***. **, ****, ***** **** its ***** ********* *** ***** “******** errors” *** “******** **************” ******* ** its ******* *********** *** *** **** of ******** *******. ***** ** *** preliminary ******** ** *** *********, *** errors ****** ** ** “* ****** of ********** ***** ************ *** ** sales ******** **** *** ************ **** the *******’* ******** ******** *** **********.”
***** *** *** **** *** ********* issues ***, ** ******, ***** *** many ** *** *** ****** *** unlike *****, ***** ******** ********** *** gave ********, ***** *** ******** **** for **** * **** ****** ******** ********.
*****'* ***** ** ** **** **** 11% *****, ***** ** * ******** good **** *** *****.
*******, *****'* ***** ** ***** **** almost **% ***** ** ******** *** disclosure **** ******.
** **** ***** ***** ** **** have **** ******** ** ******* ** share ***** *** ********** *** **** update **** **/**** **** *******.
***** ******** ********* ******* **** ******* -***** ******* ****** ********, *** ****** and ******** ****** *** ** *** Fiscal **** - *** **, ****(********** ** **** ******* *********** **** **** *** ********** about *** ***********).
*****'* * ********** **** **** ******* and **'** ****** ***** **** *** pertinent *********** **** ******** ***** *** restatement.
***** ***** *** *** **** ****** 45%, ********** ** **** **********, ** shown *****:
**'* **** ** *** ********* **** yet ** **** *********** ** **** better ***** *** ****, ** **** would ** ********** **** **** **** smaller ***** ***** ** *** ***.
**'* **** *** *** ** ** will ******** ** ***** ** *** how **** *******.