Is Knowles (KN) Overvalued Amid Strong Earnings and Bullish Outlook?

The stock of Knowles Corporation (KN) has surged 58% over the past six months, trading near its 52-week high of $24.54 as of November 2025. This rally follows robust Q3 2025 earnings, with revenue and EPS exceeding guidance and analysts' expectations. Yet, as the market celebrates, a critical question emerges: Is this ascent driven by fundamentals, or does it reflect speculative momentum masking structural risks?

Earnings Beat and Guidance: A Foundation for Optimism

Knowles reported Q3 2025 revenue of $153 million, a 7% year-over-year increase, landing at the high end of its guidance range, as reported in the Q3 2025 financial results. Earnings per share (EPS) rose 22% YoY to $0.33, also surpassing expectations, according to the earnings call highlights. The Precision Devices segment, which serves medtech, defense, and energy markets, grew 12% YoY, while the MedTech and Specialty Audio segment saw 2% growth despite a flat gross margin of 53%, as detailed in the earnings call highlights.

Looking ahead, the company projects Q4 2025 revenue of $151–161 million, implying 9% YoY growth at the midpoint, according to the Q3 2025 financial results. Adjusted EBIT margin guidance of 22%–24% and EPS of $0.33–$0.37 further underscore confidence in sustaining momentum, as reported in the Q3 2025 financial results. CEO Jeffrey Niew highlighted U.S.-based manufacturing and custom-engineered solutions as competitive advantages, positioning Knowles to capitalize on demand in EVs and energy infrastructure, according to the earnings call transcript.

Valuation vs. Fundamentals: A Tug-of-War

While earnings and guidance are compelling, InvestingPro's Fair Value assessment reveals a disconnect. KN's current market capitalization of $2.05 billion exceeds its calculated fair value, despite outperforming revenue and EPS forecasts in Q3, according to the earnings call transcript. The stock's 3.58% post-earnings surge and proximity to its 52-week high suggest strong investor sentiment, but analysts' price targets-ranging from $18 to $25-indicate a wide dispersion of views, as reported in the earnings call transcript.

The valuation debate hinges on whether Knowles' growth trajectory justifies its premium. For instance, the Precision Devices segment's gross margin improved 150 basis points YoY to 41.5%, driven by factory utilization gains, but specialty film ramp costs temper optimism, according to the earnings call highlights. Meanwhile, the company's $29 million in Q3 operating cash flow and $15 million reduction in debt highlight disciplined capital management, according to the earnings call transcript. However, these metrics must be weighed against forward-looking risks.

Risks: Tax Hikes, Supply Chains, and Saturation

Knowles' bullish outlook is not without shadows. The company warned that its effective tax rate could rise from 7%–11% in 2025 to 15%–19% in 2026, directly impacting profitability, according to the Q3 2025 financial results. Additionally, supply chain disruptions-already a drag on production-could delay orders, particularly for its specialty film line, which is expected to generate $25–30 million in 2025 but faces capacity constraints, as reported in the earnings call transcript.

Market saturation also looms. The MedTech and Specialty Audio segment, while growing 2–4% in 2026, operates in a mature market where incremental gains are harder to secure. Meanwhile, macroeconomic pressures, including rising interest rates, could dampen consumer spending on audio products, as reported in the earnings call transcript.

Conclusion: A Cautionary Bull Case

Knowles' Q3 performance and 2026 guidance paint a picture of a company navigating its markets adeptly. Its focus on high-margin segments like medtech and energy, coupled with a strong balance sheet, supports a case for long-term growth. However, the stock's premium valuation, combined with tax headwinds and supply chain vulnerabilities, suggests caution.

For contrarian investors, KN may represent a high-conviction opportunity if the company executes on its capacity expansion and secures the anticipated energy order in Q2 2026. Yet, for others, the risks of overvaluation-amplified by speculative momentum-warrant a wait-and-see approach. In a market where optimism often outpaces reality, Knowles' story is a reminder that even strong fundamentals can be outpaced by exuberance.