Phase Space AI

Valuation

UFP Technologies [UFPT]

UFP Technologies [UFPT] — Valuation

Spot $254.36 (2026-07-30). Two outputs: a 12-month target and the 5-year implied-path test.

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1. COMPANY STATE

STATE A with a recorded reservation — profitable, mid-teens operating margin in a 1.6pp band for four years, but 27.9% of revenue acquired in two years, which the State-A test's "no transformative acquisition" requirement fails on a literal read. Full evidence in UFPT_Research.md §5. evidence_grade: B.

Consequence: terminal margin built from UFPT's own economics plus an explicit forward bridge; industry data as a sanity band only.

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2. Verified inputs

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3. TERMINAL MARGIN — 15.5%

The hard constraint and the sufficiency test

m_EBIT,T ≤ m_gross,T      →     15.5% ≤ 29.0%     ✓   (13.5pp of headroom)

Terminal EBIT consumes 53.4% of terminal gross profit, leaving 13.5pp of revenue for all SG&A and R&D against 14.3pp actually spent in FY2025 (SG&A 12.85% + R&D 1.43%). The required reduction is 0.8pp over five years. This is the sufficiency test, not just the literal ceiling — and it is the test that showed EV/EBIT was inadmissible on Fabrinet at 2.2pp of headroom. See UFPT_Research.md §3 for the full Fabrinet-vs-Celestica arithmetic; UFPT is the Celestica case with 3.75x more headroom.

The bridge, from 10-K lines

Arithmetic: 29.0 − 12.1 − 1.4 = 15.5.

Position vs the record: 15.5% is +0.3pp above the TTM actual of 15.21% and −0.5pp below the FY2024 peak of 16.0%. It is inside UFPT's own four-year observed range (14.4%–16.0%) and requires nothing the company has not already earned. This is the safest terminal margin in the three-name cluster.

Note the AV field defect that would have broken this bridge. AV reports no sellingAndMarketing or generalAndAdministrative split for UFPT and its sellingGeneralAndAdministrative for FY2025 is $77.4m — which matches the 10-K exactly (0.0% error). The NOW/INTU/ORCL "G&A only" defect does not fire on UFPT. Reported clean, per the DATA_DEFECTS.md instruction.

steady_state_check.py — what it flagged, and it is the important finding

python3 steady_state_check.py --ticker UFPT --terminal-margin 0.155 --exit-multiple 13.0
  (asset sha256: 6fbbb0f9…)

Notice what it did NOT flag: the terminal margin. At +0.2pp versus the latest annual and below the window peak, the margin passes cleanly. The check pointed at the exit multiple, and the exit multiple is where this name actually fails. I therefore lowered the tested 13.0x to a base of 11.0x — still above the 8.5x warranted, for the reason argued in §4 — and report both.

Why ROIC is only 12.5%: goodwill $196.6m and acquired intangibles $137.9m are 60.1% of invested capital. On tangible invested capital ($556.5m − $196.6m − $137.9m = $222.0m) the return is 31.3%. Both figures are true and they answer different questions. The 12.5% is the right one for a company whose growth strategy is buying businesses, because that is the return it actually earns on the capital it deploys. The 31.3% would be the right one for a company growing organically — and UFPT's organic growth is 1.5%.

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4. Exit multiple — 11.0x, derived

EV_T/EBIT_T = (1−t)(1−g/ROIC)/(WACC−g).

• t = 21% (FY2025: operating income $92.338m, net income $68.313m, implied effective rate ~20%).
• g = 3.0%.
• WACC = 10.0% — trailing 252-day vol 47.2%, beta 1.07, $2.0bn cap. Materially riskier than RMD.

Base adopted: 11.0x. It is the most generous of the three derivations and it still implies 51.2% compression from today's traded 22.52x. That compression is not a punishment; it is what happens to a 22x multiple when growth goes from an acquired 19.4% to an organic mid-single-digit.

Per criteria.md, the base may not sit below every stated anchor without argument. It does not — 11.0x sits at the top of the derived range, not below it.

Growth-matched comparator set — UFPT's own, shared with neither RMD nor USPH

Medical-device contract manufacturers and adjacent outsourced-manufacturing names, which is a different operating model from RMD's branded devices and from USPH's clinic services:

n = 4, growth range 9%–25%, dispersion 16pp. This set does NOT bracket UFPT's ~5% exit-year growth — every member grows faster. Per the growth-matching rule the multiple is therefore UNIDENTIFIED from the comparator set and must not be taken as a median from it. It is taken from the warranted-multiple identity instead, exactly as valuation.md requires. Declared, not defaulted.

The set is retained for the instrument question (§3 of the research file), which is what it is genuinely informative about.

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5. THE IMPLIED-PATH TEST — the Valuation Criteria

python3 reverse_dcf.py --spot 254.36 --shares 7.736939 --net-cash -117.634 \
  --revenue 608.875 --years 5 --wacc 0.10 --terminal-margin 0.155 \
  --exit-multiple 11.0 --fcf-margin 0.1141 --hist-cagr 0.194
  (asset sha256: a46b1c2c…)

Verdict: FAIL. And the two margins are the memo. Against the headline trailing CAGR this is a 0.9pp miss — the kind of number that gets argued about. Against the growth the underlying business actually produces it is an 18.8pp miss, and the price requires UFPT to keep buying companies at roughly the same pace, funded from a balance sheet that already carries $137.6m of debt against $20.0m of cash and generates $69.4m of free cash flow a year.

That is the honest statement of what today's price requires: not a growth rate, but a continued acquisition programme. The reverse DCF cannot distinguish acquired revenue from organic revenue — that is a limitation of the instrument, and it is why the organic decomposition in the research file is the primary output of this memo rather than a supporting detail.

The --fcf-margin sign

UFPT's demonstrated TTM FCF margin is +11.41% — positive, so omission would overstate required CAGR (DATA_DEFECTS.md). The flag was supplied. The tool's calibration table puts the bias at roughly +2.1pp at a 10% FCF margin, so terminal-only would have printed ~22.4% instead of 20.3% — still a FAIL either way, but the correct number is used.

Sensitivity over the exit multiple

The flip point against the trailing CAGR is 12.4x — below today's traded 22.52x, which is why the screen passed it. Against organic growth there is no flip point anywhere in the range: even at today's own multiple held forever, the price requires ~7% against 1.5% demonstrated organic.

This is the sensitivity that matters and the screen never ran it. A +11.0pp valuation margin computed on a 19.4% CAGR that is 96.7% acquired is not a valuation margin; it is a restatement of the acquisition programme.

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6. TWELVE-MONTH TARGET — $260, +2.3%

UFPT's own EV/Sales history

Daily series 2020-07-27 → 2026-07-29 (n = 1,477), point-in-time TTM revenue lagged 45 days, share count and net debt held at current verified values.

UFPT is not cheap on its own history — 60th percentile over six years, 35th over three. Contrast RMD at the 7.4th. The 52-week range is $173.86–$279.49; spot sits 9.0% below the high.

The target

• NTM revenue $650m — Street consensus. AV EARNINGS_ESTIMATES: FY2026 $640.0m / EPS $10.39; FY2027 $679.0m / EPS $11.69. Blended across the twelve months from here: ~$650m. Revision direction trailing 30 days: 3 up / 0 down on the annual horizons — genuinely positive, and the one input in this file that argues for the name.
• Multiple: 3.28x = the median of the FULL six-year window (current 60.1st percentile). Deliberately the full-history median rather than the 3-year median of 3.60x, and the reason is stated: the three-year window prices in acquisition-fuelled 19% growth, while the full window includes UFPT's pre-acquisition-spree period, which is the better analogue for a business growing 1.5% organically. Using the 3-year median would embed the very growth rate this memo shows is not organic — the multiple-history equivalent of a ramp endpoint extrapolated.
• Target EV = 3.28 × $650m = $2,132m; − net debt $117.6m = $2,014m; ÷ 7.737m shares.

Target: $260. +2.3% to spot.

The two horizons disagree by less than they appear to. The 12-month target says the multiple is roughly fair against its own history and the 12-month payoff is nil; the 5-year test says the price requires an acquisition programme the organic business cannot substitute for. Both say: not paid to own it.

No external professional target is on file for UFPT in this project, so the valuation.md sanity band cannot be run. Recorded as unavailable, not as agreement.

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7. Criteria scoring

The memo issues no position verdict.

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8. Downside case — named cause

Cause: Intuitive Surgical brings production in-house, and it is UFPT's own 10-K that names it — "the risk that our two largest customers… will not purchase the expected volume of goods… because… Intuitive Surgical SARL, our largest customer, decides to manufacture the products itself."

Intuitive was 24.3% of FY2025 revenue and its dollars were flat (−0.5%) year on year. A phased insourcing over three years removes ~$146m of revenue at above-average incremental margin. On the remaining base, revenue falls to ~$460m and operating income to ~$55m; at a 10x exit on a shrinking business the equity is worth roughly $95–110/share — a −58% to −63% permanent impairment.

Probability: 15% over five years. Not a going-concern case: net debt is only $117.6m against $69.4m of annual free cash flow. Logged to the ledger for Brier scoring.

Second, lower-severity case: the acquisition programme stops — because leverage, price or integration capacity binds — and the market re-rates UFPT to an organic-growth multiple. At 1.5% organic growth and a 15x EV/EBIT (still above the 8.6x warranted at 12.5% ROIC), the equity is worth ~$165, a −35% impairment with no operational deterioration at all. This is the more likely of the two and it requires nothing to go wrong — only for the last two years' pace of M&A to slow.