Mercury Systems is a hot stock — but for how much longer?


Don’t look now, but Andover-based Mercury Systems has won another Navy contract. And this one could be a biggie.

Mercury, which has announced a smattering of $2 million and $3 million contracts over the past several months, said after Monday’s market close that it landed a five-year, follow-on pact with the Navy to deliver advanced Digital RF Memory subsystems that support jamming in a multi-threat environment. Potential value: $153 million.

Key word is “potential.” The phrasing of the press release says the pact is worth “up to” that number. It could turn out to be significantly less. But it’s still a much bigger number than we are accustomed to seeing. It also represents more than half of a year’s worth of revenues.

Mercury, under youthful CEO Mark Aslett, has done quite well in recent years. Long based in Chelmsford (it only recently started using “Andover” as a dateline in its releases), annual revenues have climbed from $209 million in fiscal 2014 (the company operates like a school year, from July 1 to June 30), to $235 million in 2015 and $270 million last year. Analysts are predicting revenues of nearly $400 million for the current fiscal year, which ends in June.    

Profitability has increased as well. It’s a trend anybody would like.

President Trump has said he aims to increase defense spending and, if he’s successful, Mercury is among the companies that would seem to benefit.   

Nevertheless, shares of Mercury have advanced by a third this year alone, from $30.22 to Monday’s close of $40.20. They’ve more than doubled from the start of 2016, when they traded for $18.36.

So, long-story-short, you’re probably pretty late if you buy here. Mercury’s market cap is nearly $2 billion, so shares are trading at five times sales even based on $400 million in revenues for fiscal 2017.

I’d be cautious.


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