NAPCO Security Looks Good, Not Great
Oct 30, 2024
Took a look at NAPCO Security (NSSC). The company makes alarm, access, and security systems, selling mostly to commercial customers (80% of sales). While hardware sales are still the bulk of business, recurring service fees have rapidly risen to 40% of revenues, from just 24% in 2020. Underlying markets are growing at 8-10% annually, a healthy rate, driven largely by a migration to cellular data for connected devices. I think NAPCO is a solid consideration, but a few things prevent an addition to the Watch List. For one, competition is strong, with Honeywell, United Technologies, and Siemens just a few huge competitors. Two, while the company is founder-led, most of the management team is into their 60's and 70's, making near-term transition a likelihood. Take a closer look at NAPCO if you like it, for me it's a mild pass.
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