MERCURY SYSTEMS INC

Where It Passes

Where It Falls Short

• Valuation0% pass✗ 28▾

  All 13 investors flag MRCY's valuation

  Price / 3-yr avg EPS

  ✗Graham<= 15x

  Price-to-Book Ratio3.3x

  ✗Graham<= 1.5x

  P/E x P/B

  ✗Graham<= 22.5

  Basic earnings-growth PEG (dividends excluded)

  ✗Lynch< 1.0 (ideally < 0.5)

  EBIT / Enterprise Value-0.4%

  ✗Greenblatt> 10%

  Earnings Yield + ROC AssessmentEY=-0.4%, ROC=-3.6%

  ✗GreenblattBoth EY > 10% and ROC > 25%

  Price / EPS

  ✗Dreman< 12x✗Templeton< 12x (fixed ceiling; proxy for the market's cheapest 40%)

  Price / (CFO / Shares)35.1x

  ✗Dreman< 8x

  Price / Book Value per Share3.3x

  ✗Dreman< 1.2x✗Templeton< 1.5x✗SchlossP/B <= 0.80x (app cutoff)

  Valuation ReasonablenessOE Yield=0.5%

  ✗MungerP/E < 25 or Owner Earnings Yield > 5%

  P/E or FCF YieldFCF Yield=2.4%

  ✗PabraiP/E < 15 or FCF Yield > 10%

  P/B or P/E vs. Historical AverageP/B=3.3x

  ✗MarksP/E < 15 or P/B < 2.0

  Discount to Intrinsic ValueN/A (negative normalized EPS)

  ✗Marks>= 20% below intrinsic value

  Price / FCF per Share41.0x

  ✗Ackman<= 25

  Price vs. Trailing Low195% of trailing low ($41.69)

  ✗Templeton<= 120% of trailing low (certified split-adjusted live window)

  Net income / market capitalization-0.76%; #3368/6340 (top 53.1%)

  ✗AsnessTop 30% of eligible cross-section✗OshaughnessyTop 10% of eligible cross-section

  Positive book equity / market capitalization+0.3118; #3648/6449 (top 56.6%)

  ✗AsnessTop 30% of eligible cross-section

  Price / Diluted EPS

  ✗NeffP/E <= 15x (app proxy for a P/E 40%-60% below the market)

  (EPS CAGR % + Dividend Yield %) / P/E

  ✗Neff> 0.7 (Neff's published traditional edge)

  Price / Tangible Book Value per Share3.31x

  ✗SchlossP/TBV <= 1.00x (app cutoff)

  Book Value per Share Change-1.2%

  ✗SchlossLatest BVPS >= earliest BVPS over >= 3 years (app rule)

  Revenue / market capitalization+0.1839; #3858/5247 (top 73.5%)

  ✗OshaughnessyTop 10% of eligible cross-section

  (Operating cash flow - capex) / market capitalization+2.40%; #2180/4519 (top 48.2%)

  ✗OshaughnessyTop 10% of eligible cross-section

  Trailing six-month price return through the evaluation date+2.29%; #2375/6202 (top 38.3%)

  ✗OshaughnessyTop 10% of eligible cross-section
• Valuation models0% pass✗ 6▾

  MRCY overvalued: all 6 models price fair value below $81.42 (median $13.95)

  Buffett fair value$4.80

  ✗Buffett-1596.2% margin vs $81.42

  Munger fair value$28.96

  ✗Munger-181.1% margin vs $81.42

  Pabrai fair value$5.29

  ✗Pabrai-1439.1% margin vs $81.42

  Akre fair value$22.60

  ✗Akre-260.3% margin vs $81.42

  Marks fair value$2.79

  ✗Marks-2818.3% margin vs $81.42

  Ackman fair value$23.48

  ✗Ackman-246.8% margin vs $81.42
• Profitability6% pass✓ 4✗ 31▾

  15 of 16 flag MRCY's profitability — Graham, Buffett, Lynch +12 more

  Positive EPS (10 years)12/27 years positive

  ✗GrahamPositive EPS every year for 10 years

  EPS Growth (3-yr avg, 10-yr window)

  ✗Graham>= 33% growth

  Net Income Positive (10+ years)18/27 years positive

  ✗BuffettPositive every year for 10+ years

  ROE (up to 5-year arithmetic mean)-2.4%

  ✗Buffett> 15% arithmetic mean (app rule)

  Operating Margin (10-yr trend)-2.2% (latest)

  ✗BuffettStable or rising over 10 years

  Free Cash Flow Proxy$24.3M

  ✗BuffettPositive and growing

  Earnings Variance (10-yr CoV)2.99

  ✗BuffettCoV < 0.3

  Retained Earnings Effectiveness

  ✗Buffett$1 retained -> > $1 market value created

  Basic earnings-growth PEG (dividends excluded)

  ✗Lynch< 1.0 (ideally < 0.5)

  3-5 Year EPS CAGR

  ✗Lynch15-30% (Fast Grower); > 0% to pass

  ROE-2.6%

  ✗Lynch> 15%

  EBIT / Enterprise Value-0.4%

  ✗Greenblatt> 10%

  Earnings Yield + ROC AssessmentEY=-0.4%, ROC=-3.6%

  ✗GreenblattBoth EY > 10% and ROC > 25%

  Net Income / Total Assets-1.56%

  ✗PiotroskiROA > 0

  ROA Change YoY-1.56% -> -1.56% (delta: +0.00%)

  ✗PiotroskiCurrent ROA > Prior ROA

  (CFO / Total Assets) vs ROACFO/Assets=5.70%, ROA=-1.56%

  ✓PiotroskiCFO/Assets > ROA

  Gross Margin Change YoY27.9% -> 27.9%

  ✗PiotroskiImproved YoY

  Pre-Tax Income / Revenue-5.5%

  ✗Dreman>= 8%

  Net Income / Shareholders' Equity-2.6%

  ✗Dreman> 12%

  Margin of SafetyP/B=3.3x

  ✗PabraiP/B < 1.5 or P/E < 15

  Return on Equity-4.8% (3-yr avg)

  ✗AkreROE > 20% (3-year avg)

  Discount to Intrinsic ValueN/A (negative normalized EPS)

  ✗Marks>= 20% below intrinsic value

  Positive Net Income Frequency18/24 years positive

  ✓MarksPositive net income in >= 7 of last 10 years

  Operating Income / Revenue-2.2%

  ✗Ackman>= 15%

  Net Income / Shareholders Equity-2.6%

  ✗Ackman>= 15%

  5-Year EPS CAGR

  ✗Templeton> 0% (5-year EPS CAGR)

  Operating Margin Trend-17.7% (2023) -> -2.2% (2025)

  ✓TempletonNon-negative operating-margin trend over 3 years

  Revenue growth vs. gross and operating margin trendgross margin 23.5% -> 27.9%, operating margin -17.7% -> -2.2%

  ✗SleepRevenue rising; gross margin flat or falling; operating margin holding

  Net income / market capitalization-0.76%; #3368/6340 (top 53.1%)

  ✗AsnessTop 30% of eligible cross-section✗OshaughnessyTop 10% of eligible cross-section

  Gross profit / total assets+10.45%; #2769/3702 (top 74.8%)

  ✗AsnessTop 30% of eligible cross-section

  Net income / positive book equity-2.57%; #3079/5226 (top 58.9%)

  ✗AsnessTop 30% of eligible cross-section

  Negative 5-year standard deviation of ROA-0.0284; #1833/5884 (top 31.2%)

  ✗AsnessTop 30% of eligible cross-section

  3-5 Year Diluted EPS CAGR-25.3% over 5 years

  ✗Neff7%-20% annualized

  Positive Diluted-EPS Years7/10 years positive

  ✓Schloss>= 70% positive over 5-10 observed years (app rule)
• Verdicts7% pass✓ 1✗ 14▾

  Split decision: 13 FAIL · 2 NEUTRAL · 1 PASS

  Overall verdict

  ✗GrahamFAIL (2/9)✗BuffettFAIL (0/9)✗LynchFAIL (0/7)✗GreenblattRank #1875✓PiotroskiPASS (F-Score 4)✗DremanFAIL (2/11)✗MungerFAIL (0/4)✗PabraiFAIL (0/3)✗AkreFAIL (1/6)✗MarksFAIL (2/5)✗AckmanFAIL (2/9)✗TempletonFAIL (2/8)✗SleepFAIL (2/6)•AsnessNEUTRAL (Not ranked)✗NeffFAIL (2/6)✗SchlossFAIL (2/7)•OshaughnessyNEUTRAL (Not ranked)
• Debt & Leverage8% pass✓ 3✗ 12▾

  11 of 12 flag MRCY's debt & leverage — Graham, Buffett, Lynch +8 more

  LT Debt vs Net Current Assets

  ✗GrahamLT Debt <= Net Current Assets

  Debt/Equity & Interest Coverage

  ✗BuffettD/E < 0.5 AND Interest Coverage > 5x

  Total Debt / Equity

  ✗Lynch< 0.33

  Cash - Long-term Debt

  ✗LynchPositive preferred

  LT Debt / Total Assets Change0.00% -> 0.00%

  ✓PiotroskiDecreased YoY

  Current Assets / Current Liabilities2.90

  ✓Dreman> 1.5✓SchlossCurrent ratio >= 1.50x (app cutoff)

  Total Debt / Shareholders' Equity

  ✗Dreman< 0.8✗Templeton< 1.0 (fixed cap; proxy for below-sector-median leverage)✗SchlossD/E < 1.00x

  Debt Levels

  ✗MungerDebt/Equity < 0.5✗AkreDebt/Equity < 0.3

  Interest Coverage & Debt/EBITDAIC=-0.6x, D/EBITDA=N/A

  ✗MarksInterest Coverage > 3x; Debt/EBITDA < 4x

  Total Debt / Shareholders Equity

  ✗Ackman<= 1.0

  Negative debt-to-equity (higher means less debt)

  ✗AsnessTop 30% of eligible cross-section
• Growth13% pass✓ 1✗ 12▾

  7 of 8 flag MRCY's growth — Graham, Lynch, Dreman +4 more

  EPS Growth (3-yr avg, 10-yr window)

  ✗Graham>= 33% growth

  Basic earnings-growth PEG (dividends excluded)

  ✗Lynch< 1.0 (ideally < 0.5)

  3-5 Year EPS CAGR

  ✗Lynch15-30% (Fast Grower); > 0% to pass

  Inventory Growth vs Revenue GrowthInv: 0.0% vs Rev: 0.0%

  ✗LynchInventory growth < Revenue growth

  EPS Growth Direction$1.23 (2009) -> $-0.65 (2025)

  ✗DremanPositive over recent years

  EPS CAGR-13.0% CAGR over 13 years

  ✗Dreman> 5% annualized

  Positive Net Income Frequency18/24 years positive

  ✓MarksPositive net income in >= 7 of last 10 years

  3yr Median Revenue Growth0.0%

  ✗Ackman>= 5%

  Positive EPS Growth Frequency1/5 years with positive EPS growth

  ✗AckmanPositive EPS growth in >= 3 of last 5 years

  5-Year EPS CAGR

  ✗Templeton> 0% (5-year EPS CAGR)

  Revenue growth vs. gross and operating margin trendgross margin 23.5% -> 27.9%, operating margin -17.7% -> -2.2%

  ✗SleepRevenue rising; gross margin flat or falling; operating margin holding

  5-year Revenue CAGR2.7%

  ✗SleepCAGR > 7%

  3-5 Year Diluted EPS CAGR-25.3% over 5 years

  ✗Neff7%-20% annualized
• Efficiency25% pass✓ 2✗ 9▾

  6 of 8 flag MRCY's efficiency — Buffett, Greenblatt, Piotroski +3 more

  Current Ratio2.90

  ✓Graham>= 2.0

  ROIC (3-5 yr avg)4.3%

  ✗Buffett> 10%

  ROIC - WACC-5.7%

  ✗BuffettPositive (WACC = 10%)

  EBIT / (NWC + Net Fixed Assets)-3.6%

  ✗Greenblatt> 25%

  Current Ratio Change YoY3.52 -> 3.52

  ✗PiotroskiIncreased YoY

  Revenue / Total Assets Change YoY0.37x -> 0.37x

  ✗PiotroskiImproved YoY

  Current Assets / Current Liabilities2.90

  ✓Dreman> 1.5

  Return on Invested Capital

  ✗Munger> 15%

  ROIC (high and growing)FY2023: ROIC=unavailable; FY2024: ROIC=unavailable; FY2025: ROIC=unavailable

  ✗AkreLatest 3 consecutive FYs: ROIC > 15% in each

  Reinvestment Rate x ROIC

  ✗AkreReinvestment Rate * ROIC > 10%

  ROIC (5-year)

  ✗SleepROIC > 12% in a majority of years
• Cash Flow40% pass✓ 5✗ 7▾

  6 of 10 flag MRCY's cash flow — Buffett, Lynch, Dreman +3 more

  Free Cash Flow Proxy$24.3M

  ✗BuffettPositive and growing

  FCF Positive and Growing$119.0M

  ✗LynchPositive and growing

  Operating Cash Flow$138.9M

  ✓PiotroskiCFO > 0

  (CFO / Total Assets) vs ROACFO/Assets=5.70%, ROA=-1.56%

  ✓PiotroskiCFO/Assets > ROA

  Price / (CFO / Shares)35.1x

  ✗Dreman< 8x

  P/E or FCF YieldFCF Yield=2.4%

  ✗PabraiP/E < 15 or FCF Yield > 10%

  FCF Positive15/17 years FCF positive

  ✓MarksPositive FCF in majority of recent years

  (OCF - CapEx) / Market Cap2.4%

  ✗Ackman>= 4%

  Price / FCF per Share41.0x

  ✗Ackman<= 25

  Positive Operating Cash Flow frequency21/23 years positive

  ✓SleepPositive OCF in >= 70% of available years

  Operating Cash Flow - Capital Expenditures$119.0M

  ✓Neff> $0 (app proxy for a strong fundamental case)

  (Operating cash flow - capex) / market capitalization+2.40%; #2180/4519 (top 48.2%)

  ✗OshaughnessyTop 10% of eligible cross-section