Is Plexus (NASDAQ:PLXS) a Buy for Long-Term Investors Despite Mixed Return Trends?

Plexus (NASDAQ:PLXS) has long been a case study in disciplined capital allocation and sector-specific resilience. As of Q2 2025, the company reported a return on invested capital (ROIC) of 13.7%, significantly outperforming its weighted average cost of capital (WACC) by 480 basis points [1]. This metric, a critical indicator of long-term compounding potential, suggests that Plexus is generating value from its reinvested capital at a rate that dwarfs its cost of funding. For context, the electronics manufacturing services (EMS) sector’s average ROCE is 10% [1], making Plexus’s performance a standout in an industry often plagued by margin compression.

Earnings Momentum and Operational Efficiency

Plexus’s Q2 2025 results underscored its ability to navigate macroeconomic headwinds. Revenue of $980 million aligned with guidance, while non-GAAP operating margins expanded to 5.7%, exceeding expectations [1]. This margin strength, coupled with a free cash flow (FCF) of $16.5 million for the quarter, highlights operational efficiency in a sector where working capital management is paramount [2]. The company’s cash conversion cycle of 68 days [1] further reinforces its liquidity position, enabling strategic initiatives like its $12.2 million share repurchase program [3].

The healthcare/life sciences segment, contributing 42% of total revenue, emerged as a key growth driver. A $205 million annualized contract win in this sector [1] signals long-term partnerships in high-margin industries, a critical differentiator in an EMS landscape dominated by commoditized manufacturing.

Valuation Premiums and Sector Risks

Plexus’s valuation multiples appear attractive relative to sector peers. As of August 2025, the stock trades at a trailing P/E of 22.83, below the EMS sector average of 32.8x [4]. Its P/B ratio of 2.11 and P/FCF of 15.60 [1] also suggest a discount to peers like TTM Technologies (P/E: 49.4x) and Sanmina (P/E: 24.2x) [4]. Analysts have even suggested a fair value of $154.6 per share [5], implying a potential upside from current levels.

However, sector-specific risks loom. Supply chain disruptions, with semiconductor lead times stretching 12–40 weeks [6], and geopolitical tensions (e.g., tariffs) could pressure margins. Cybersecurity threats, costing the industry an average of $4.88 million per breach [6], add another layer of complexity. Yet, Plexus’s strategic focus on healthcare and aerospace/defense—sectors with structural growth drivers like digital transformation and regulatory tailwinds [1]—positions it to mitigate these risks.

Is the Long-Term Thesis Intact?

Despite flattish ROCE trends (13% over five years [1]) and a debt-to-equity ratio of 6.9% [2], Plexus’s fundamentals justify its valuation. Its ROIC of 13.7% [1] and 26% projected 2025 EPS growth [4] outpace sector averages, while its 1.4% year-over-year revenue growth [1] reflects resilience in a volatile environment. The company’s ability to secure $205 million in annualized revenue from new programs [1] and its 4.8% economic return [1] further bolster its long-term case.

Conclusion

Plexus’s combination of consistent ROCE, margin expansion, and strategic positioning in high-growth sectors makes it a compelling long-term investment. While sector-specific risks like supply chain volatility and cybersecurity threats persist, the company’s disciplined capital allocation, strong free cash flow generation, and undemanding valuation multiples provide a margin of safety. For investors with a multi-year horizon, the current price appears to offer a reasonable entry point, assuming the company maintains its operational execution and capital efficiency.

Source:
[1] Plexus Announces Fiscal Second Quarter Financial Results [https://investor.plexus.com/news/news-details/2025/Plexus-Announces-Fiscal-Second-Quarter-Financial-Results/default.aspx]
[2] Plexus (PLXS) Balance Sheet & Financial Health Metrics [https://simplywall.st/stocks/us/tech/nasdaq-plxs/plexus/health]
[3] Plexus (PLXS) Reports Q2 Earnings [https://finance.yahoo.com/news/plexus-plxs-reports-q2-earnings-233011767.html]
[4] Plexus (NasdaqGS:PLXS) Stock Valuation [https://simplywall.st/stocks/us/tech/nasdaq-plxs/plexus/valuation]
[5] Plexus (PLXS): Assessing Valuation After Q3 Earnings [https://simplywall.st/stocks/us/tech/nasdaq-plxs/plexus/news/plexus-plxs-assessing-valuation-after-q3-earnings-beat-and-2]
[6] 2025 Electronic Supply Chain Predictions [https://simcona.com/blog/supply-chain-challenges-in-the-electronics-industry]