Napco Security Technologies Faces Investor Lawsuit Over Alleged Misstatements: June Deadline Looms

The stock price of Napco Security Technologies, Inc. (NASDAQ: NSSC) plummeted 26% in a single day on February 3, 2025, after the company revealed a 9.7% year-over-year decline in net sales and abandoned its long-term margin targets. This collapse has sparked a federal securities class action lawsuit, with law firm Faruqi & Faruqi, LLP leading the investigation on behalf of investors. The case hinges on allegations that Napco made misleading statements about its financial performance and sales forecasting capabilities, artificially inflating its stock price during the period from February 5, 2024, to February 3, 2025. Investors who suffered losses must act by June 24, 2025, to seek lead plaintiff status in the lawsuit.

The Allegations: A Pattern of Misstatements

The lawsuit, Patel v. Napco Security Technologies, Inc., claims that Napco executives assured investors of its ability to achieve fiscal 2026 growth targets and margin goals, particularly through its hardware division. However, the complaint argues that these statements were misleading because the company failed to disclose critical risks:

• Flawed Forecasting: Napco allegedly omitted material information about its inability to accurately predict demand for its products, especially in light of its reliance on a small number of distributors.
• Distribution Vulnerabilities: Two major distributors reduced orders, citing inventory cuts and internal restructuring. One distributor’s sales dropped by 25%, contributing to a 9.7% overall sales decline.
• Margin Overpromises: The company abandoned its 45% EBITDA margin target for fiscal 2026, admitting it “doesn’t know” if the goal is achievable.

The February 3, 2025, financial report revealed these issues, causing the stock to crash from $36.70 to $26.93—a loss of $9.77 per share in one day. Analysts downgraded the stock, and investigations by multiple law firms, including Faruqi & Faruqi, Hagens Berman, and The Law Offices of Frank R. Cruz, followed.

Financial Breakdown: A Mixed Picture

While sales slumped, some metrics showed resilience:
- Recurring Service Revenue (RSR) rose 14.4% to $21.2 million (49% of total revenue), driven by high-margin cloud-based services like the MVP Access platform.
- Gross profit margin improved to 57.0% (vs. 52.6% in 2024), but adjusted EBITDA dropped 19.3% to $12.18 million.
- Cash reserves rose to $86 million, and the company maintained its dividend program, paying $0.125 per share in April 2025.

However, the company’s net income fell 17% to $10.47 million, and diluted EPS dropped 17.6% to $0.28.

CEO’s Defense vs. Investor Claims

CEO Richard Soloway attributed the sales slump to “temporary distributor issues” and highlighted growth opportunities in school safety contracts (e.g., a $14 million deal with the Pasadena Unified School District) and new products like the Prima panel. Yet, the lawsuit argues these assurances were misleading given the undisclosed flaws in forecasting and distribution.

Investor and Whistleblower Actions

• Deadline Alert: Investors who purchased Napco shares during the class period must submit loss forms by June 24, 2025, to seek lead plaintiff status.
• Whistleblower Incentives: Individuals with non-public information may qualify for up to 30% of SEC recoveries under the whistleblower program.
• Legal Counsel: Faruqi & Faruqi urges affected investors to contact Partner James (Josh) Wilson at 877-247-4292 or visit
  www.faruqilaw.com/NSSC.

Conclusion: A High-Risk, High-Stakes Case

Napco’s lawsuit underscores the consequences of corporate misstatements and the importance of transparency in financial reporting. With a 26% stock collapse and abandoned margin targets, investors face significant losses. The June 24 deadline is non-negotiable for those seeking recovery.

Critical data points reinforce the case’s severity:
- Stock Price Impact: The $9.77 per-share loss represents a 26.6% drop in a single day, erasing over $100 million in market cap.
- EBITDA Margin Retreat: From 31.8% in 2024 to 28.4% in 2025, signaling operational strain.
- RSR Growth: While recurring revenue rose, it could not offset hardware sales declines, highlighting reliance on a fragile sales model.

The case will test whether Napco’s long-term prospects—such as its school safety contracts and cloud-based platforms—can justify its valuation or if the company’s missteps warrant investor compensation. For now, the clock is ticking: investors must act swiftly to preserve their rights.