What Happened?
Shares of aerospace and defense company Mercury Systems (NASDAQ: MRCY) fell 23.1% in the afternoon session after it reported fourth-quarter results that beat Wall Street expectations, but the positive headline numbers were overshadowed by concerns about the business's underlying health.
Despite revenue growing 4.4% year on year to top estimates and adjusted earnings per share (EPS) also coming in well ahead of consensus, investors were more focused on deeper issues. The company reported another quarter of negative operating margins at -4.6% and a sharp year-on-year decline in its free cash flow margin, which fell to 19.6% from 36.7%. Zooming out, longer-term trends paint a concerning picture, with sluggish five-year sales growth and a 16.7% annual decline in EPS over the same period, suggesting a struggle to generate profitable growth. The market's negative reaction suggests these underlying profitability and growth concerns outweighed the quarterly beat.
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What Is The Market Telling Us
Mercury Systems’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. But moves this big are rare even for Mercury Systems and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 27 days ago when the stock gained 5.6% on the news that the broader defense sector rallied following President Donald Trump's call for a significant increase in the U.S. military budget. The sector-wide surge came after Trump posted on social media that he wanted to boost the country's military spending to $1.5 trillion. The proposed increase in defense spending caused investors to rush back into the sector, lifting shares of U.S. defense contractors. The positive sentiment was widespread, as an index tracking European aerospace and defense companies also climbed around 2% to a new all-time high.
Mercury Systems is flat since the beginning of the year, and at $75.50 per share, it is trading 26.7% below its 52-week high of $103.02 from January 2026. Investors who bought $1,000 worth of Mercury Systems’s shares 5 years ago would now be looking at an investment worth $1,031.
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