Is Now the Right Time to Buy or Wait for Knowles Corporation (NYSE:KN)?

In the world of specialty electronics, Knowles Corporation (NYSE: KN) has long been a name that straddles the line between innovation and volatility. As of August 2025, the stock trades at a trailing price-to-earnings (P/E) ratio of 72.5, a figure that raises eyebrows in a market where the industry median for the Hardware sector is just 26.21. Yet, this valuation is not without context. Knowles has historically traded at extremes—peaking at a P/E of 763.5 in 2017 and hitting a low of 12.74 in 2022. The question for investors is whether the current premium reflects justified optimism about the company's future or a dangerous overreach.

The Valuation Dilemma

Knowles' P/E ratio of 72.5 is slightly below its 8-year historical average of 74.71 but well above the 5-year average of 56.53. This suggests that while the stock is not at its most extreme valuation point, it remains significantly priced relative to its earnings. For context, peers like CTS Corporation (P/E: 19.1) and General Electric (P/E: 37.0) trade at much lower multiples, even as Knowles outperforms them in revenue growth and margin expansion. The disparity highlights a market that is either undervaluing its competitors or overvaluing Knowles' potential.

The company's earnings history complicates the picture. In 2024, Knowles reported a negative EPS of -$2.67, a result of restructuring costs and market headwinds. Yet, in Q2 2025, it delivered $145.9 million in revenue—a 8% year-over-year increase—and $36.4 million in net cash from operations. This resilience has fueled investor optimism, but the path to consistent profitability remains uncertain.

Growth Potential: A Double-Edged Sword

Knowles' strategic pivot toward MedTech, Defense, and Industrial markets has positioned it to capitalize on secular trends. The Precision Devices segment, which includes high-performance capacitors and inductors, is expected to drive growth as demand for industrial automation and medical devices accelerates. CEO Jeffrey Niew has emphasized that the Specialty Film product line—acquired via the Cornell Dubilier deal—is a “new revenue growth area” with the potential to scale manufacturing capacity through 2026.

The company's financials back this optimism. In Q2 2025, non-GAAP gross profit margins hit 44.2%, up from 41.5% on a GAAP basis, as it exits lower-margin consumer markets. Share repurchases of $30 million in the quarter further signal confidence in its capital structure. However, the inductor product line, while promising, is expected to take 24 months to generate meaningful revenue. This lag introduces a critical risk: if the market's patience wanes before these initiatives bear fruit, the stock could face a sharp correction.

Volatility as an Opportunity

Knowles' history of volatility is both a warning and a potential opportunity. The stock's P/E ratio has swung wildly, from a 2017 peak of 763.5 to a 2022 trough of 12.74. This volatility is partly due to its exposure to niche markets, which are sensitive to macroeconomic shifts and supply chain disruptions. For example, tariffs are estimated to impact less than 5% of revenue, but the company's ability to pass costs to customers has insulated it from some of the worst effects.

Investors who can stomach this volatility may find entry points if the stock retraces to more “normal” levels. The median historical P/E of 22.39 is far from the current 72.5, but such a drop would require a significant earnings shortfall or a broader market selloff. For now, the stock appears to be priced for perfection—assuming the Specialty Film and inductor lines deliver as promised.

The Case for Caution

While the growth story is compelling, the valuation remains a hurdle. A P/E of 72.5 implies that investors are paying 72 times earnings for a company that has yet to prove it can sustain consistent profitability. Even with a 4–6% organic growth outlook, the stock's multiples suggest expectations of a step change in earnings power. If the company underperforms—say, if the inductor ramp-up is delayed or if MedTech demand softens—the stock could face a painful correction.

Moreover, the company's reliance on a few high-margin markets leaves it vulnerable to sector-specific risks. A slowdown in medical device adoption or a shift in defense spending could disproportionately impact Knowles compared to more diversified peers.

Final Verdict: Buy, Wait, or Hedge?

For investors with a long-term horizon and a high risk tolerance, Knowles offers a compelling case. The company's strategic focus on high-growth markets, strong cash flow generation, and disciplined capital allocation provide a foundation for future value creation. However, the current valuation demands a high degree of confidence in its execution.

A more cautious approach would be to wait for a pullback. If the stock retraces to a P/E closer to its 5-year average of 56.53, it would represent a more attractive entry point. Alternatively, investors could hedge their bets by allocating a smaller portion of their portfolio to KN while maintaining exposure to its peers at lower valuations.

In the end, Knowles is a stock for the patient and the bold. The question is whether you're ready to ride the volatility—or wait for a more favorable entry.