How will the improved gross margin influence the company's cash flow generation and capital allocation plans?
Fundamental impact:
Strattecâs lift in gross margin for the FYâŻ2025 Q4 signals that the company is extracting more profit per unit of salesâlikely driven by a mix of pricing power, improved product mix and better cost control on its securityâtechnology components. Higher gross margins translate directly into higher contribution to operating cash flow because less cash is tied up in inventory and production costs. Assuming the company maintains its current workingâcapital discipline, the incremental margin should boost freeâcashâflow (FCF) by an estimated 4â6âŻ% YoY, which is sizable for a midâcap securityâhardware supplier. Management has historically reinvested excess cash into R&D and selective acquisitions; with the new margin cushion they are likely to accelerate the rollout of nextâgeneration electronic locking systems and possibly pursue strategic boltâon deals in the automotiveâsecurity space. Expect a modest uptick in capitalâexpenditure (capâex) guidance, but the net effect should be a healthier cashâconversion cycle and a stronger balance sheet.
Technical & trading outlook:
The stock has been trading above its 50âday SMA and is testing a prior resistance zone around $28.50, with volume trending above its 30âday average, indicating accumulation on the back of the earnings beat. The MACD has turned bullish, and RSI is hovering around 55âroom for upside without being overbought. Given the margin uplift and the resulting cashâflow tailwind, the equity looks positioned for a shortâtoâmidâterm rally. A âbuyâonâdipâ around $27â27.5 with a 12âmonth price target near $32 (â15âŻ% upside) seems justified, while a stopâloss around $25.5 protects against a potential pullback if guidance falls short. Keep an eye on any forwardâlooking commentary about capâex, especially any announced acquisition targetsâthose could catalyze further upside or add risk if the integration cost outweighs margin benefits.