Knowles Corporation (KN): what the price assumes

In the published model solve dated 2026-Q2, anchored at $34.23, Knowles Corporation (KN) is priced for today's economics sustained for ~8.7 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-27.

Generated: 2026-07-29 · Exported: 2026-08-01 · Source: https://boothcheck.com/report/KN

Headline

FieldValue
TickerKN
CompanyKnowles Corporation
Current price$34.23/sh
CompositionPrecision Devices 55% / MedTech & Specialty Audio 45%

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin (value-band context)19.0%
Operating margin today13.4%
Margin expansion (value-band)+5.6pp
Must persist for8.7y
Multiple paid38x operating income

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 9.7% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2 years.

How unusual the bet is: high

ReferenceValue
vs own history+0.47σ
cohort percentile (of 212 peers)92
sustained it ~8.7 years at this level18%
implied end-window share0%

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset5.19x4expensive
Earnings3.36x4expensive
Relative2.45x5expensive
Growth1.02x3expensive

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.0%); the inversion above states its own rate.

Per-Model Detail (n=16)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$12.382.76xyesFCF base $0.0B, growth 25% (input: historical growth), terminal g 4.0%, WACC 9.0%, 7yr projection
DCF Exit MultipleGrowth$33.691.02xyesExit EV/EBITDA: 22.6x / 25.6x / 28.6x (bear / base = today's held flat / bull), 7yr
Relative ValuationRelative$21.071.62xyesP/E 28.32x (blended: static sector reference 18x + trailing (TTM) 52x), scenarios: 22.7x / 28.3x / 34.0x (bear / base = reference held flat / bull), EV/EBITDA 15.38x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$7.064.85xyesBV/sh $9.12, ROE (TTM) 7.2%, ke 9.3%
Two-Stage Excess ReturnAsset$6.185.54xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$45.360.75xyesRev $0.6B, growth 30% (input: historical growth; tapered), Terminal P/S: 3.8x / 4.8x / 5.7x (bear / base = today's held flat / bull, cap 12x)
Peter Lynch Fair ValueRelative$7.564.53xyesEPS $0.63, growth 2% (input: historical EPS growth), PEG=26.20 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$28.451.20xyesNormalized EBIT (5y avg op income, one-time charges added back) $0.32B × (1−21%) / WACC 9.0% → EPV (no growth)
Residual IncomeAsset$6.055.66xyesBV $9.12 + 5yr PV of (ROE (TTM) 7.2% − Kₑ 9.3%) × BV; BV grows 4.7%/yr
Graham NumberAsset$11.373.01xyes√(22.5 × EPS $0.63 × BVPS $9.12) — Graham's conservative floor
EV/EBITDA RelativeRelative$13.972.45xyesEBITDA $0.12B × sector EV/EBITDA 11.0x
FCF YieldEarnings$1.9817.29xyesFCF $25.9M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings——no—
Ben Graham FormulaEarnings$20.331.68xyesEPS $0.63 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$1.4323.94xyesBV $9.12 × (ROIC 1.4% / WACC 9.0%) (excluded from median)
P/Sales SectorRelative$8.613.98xyesRevenue $0.61B × sector P/S 1.2x
PEG Fair ValueRelative$23.631.45xyesEPS $0.63 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings YieldEarnings$6.815.03xyesEPS $0.63 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$163.2m
Net debt / NOPAT (after-tax)2.51x
Net debt / operating income (pre-tax)1.99x
Share count CAGR (buyback)-1.8%
Burning cashno

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

Knowles has remade itself into a two-segment specialty-components company, Precision Devices serving defense and medtech, and MedTech & Specialty Audio serving hearing health, and the numbers reflect the shift: Q1 2026 revenue rose 16% to $153 million with gross margin expanding to 43.8% from 40.3%.

The stock is priced richly. At $41.37 the market pays about 62x company-wide operating income, implying growth held near the self-funding ceiling for about 13 years, a pace only about 15% of comparable companies have sustained.

Growth is real but modest in guidance: MedTech & Specialty Audio is guided to 2% to 4% full-year growth, and adjusted EBITDA is expected to grow above the 10% to 14% target. The valuation assumes that durability extends far longer than the guidance window.

Bull Case

Knowles is best understood by its stage: a mature components maker that has deliberately reshaped its portfolio toward higher-quality, more defensible end markets. It exited the brutally competitive consumer microphone business and now runs two segments. Precision Devices, 55% of the mix, makes capacitors and radio-frequency components across a broad range of applications and frequencies, primarily serving the defense market (FY2025 10-K, accession 0001587523-26-000005). MedTech & Specialty Audio, 45% of the mix, supplies the tiny acoustic components inside hearing aids and hearing-health devices. Both are specification-driven, design-in businesses where the customer qualifies the part into a product and does not casually switch suppliers. That is a different, sturdier company than the one the market remembers.

The recent numbers show the transformation working. Q1 2026 revenue rose 16% year over year to $153.1 million, with Precision Devices at $85.1 million and MedTech & Specialty Audio at $68.0 million, the latter up 14%. The more telling line is margin: gross margin expanded to 43.8% from 40.3% as higher volumes, cost reductions, and a better product mix more than offset ramp-up costs. Non-GAAP EPS from continuing operations jumped 50% to $0.27, and earnings from continuing operations swung to $11.3 million from a small loss. A specialty-components business expanding margin while growing double digits is exactly what the portfolio reshaping was supposed to produce.

The demand drivers are structural. In hearing health, the company points to expanding access in emerging markets driving hearing-aid volume, and to recent US regulations enabling people with mild hearing loss to buy hearing aids over the counter, which opens new channels in a demographic with extremely low current adoption (FY2025 10-K). That is a genuine market-expansion catalyst for the MSA segment. On the Precision Devices side, defense and medtech demand is durable and less cyclical than consumer electronics. Management guides adjusted EBITDA to grow above its 10% to 14% target, and the company is shrinking its share count about 2% a year. For a transformed specialty supplier with margin momentum and structural demand, the operating story is in good shape.

Bear Case

The variable with the most leverage on Knowles is regulation and policy, and it cuts at both segments in ways the elevated price does not reflect. Start with the defense exposure in Precision Devices, which the company says primarily serves the defense market (FY2025 10-K, accession 0001587523-26-000005). Defense demand is steady until it is not: it depends on government budgets, appropriations timing, and program priorities, all of which can shift with an election or a continuing-resolution standoff. A pause or reprioritization in defense procurement would hit the larger of the two segments directly, and the current valuation gives no credit to that risk.

The hearing-health side carries the opposite policy risk: the same over-the-counter deregulation the bull case celebrates is a double-edged sword. The company notes that recent US regulations let people with mild hearing loss buy hearing aids over the counter, opening new channels (FY2025 10-K). But OTC distribution also invites lower-cost, commoditized devices that compress the value of premium acoustic components, and it lowers the barrier for new entrants. Regulation that expands the market can also reshape it toward cheaper products, and Knowles sells into the premium tier. The volume gain may not translate into proportional component value.

The dominant problem, though, is the price relative to the fundamentals. At $41.37 (June 27, 2026) the market pays about 62x company-wide operating income, implying operating growth held near the self-funding ceiling for roughly 13 years, a pace the engine flags as elevated, above what fundamentals comfortably support, with only about 15% of comparable companies sustaining it for even a decade. The static methods underline the gap: simple excess return near $7, residual income near $6, FCF yield near $2, all a small fraction of the price, because trailing return on equity near 7% barely clears the cost of capital and free cash flow is thin. Meanwhile management's own guidance has MedTech & Specialty Audio growing just 2% to 4% this year. A 2% to 4% guided grower priced for 13 years of ceiling-rate compounding is a wide gap, and net debt near $163 million plus a beta above the market leave little cushion if either segment's policy backdrop turns. The price is a long-duration durability bet that the near-term guidance does not support.

Valuation

Knowles is priced as a durable compounder, and the valuation methods say only the growth lens supports that price. At $41.37 the reverse-DCF reads the market as paying about 62x company-wide operating income, implying operating growth held near the 25% self-funding ceiling for roughly 13 years, computed at a 10.1% cost of capital. The engine rates that as elevated, and the base rate is unforgiving, only about 15% of comparable fast-growers sustained such a pace for ten years. The method families split sharply: the asset and earnings-power frames land far below the price, simple excess return near $7, residual income near $6, FCF yield near $2, earnings power value near $19, because trailing return on equity near 7% and thin free cash flow do not support the multiple. Only the growth frames reach the price, the DCF exit multiple near $36 and discounted future market cap near $35, and they get there by extrapolating recent double-digit growth and a high terminal multiple.

The premium-by-family figures confirm it: the price is several times the asset and earnings-power fair values, and roughly 3x the peer-multiple frame.

The honest synthesis is that the price embeds a moat-and-durability premium the static frames structurally cannot capture, and the bet is whether the reshaped portfolio of defense components and hearing-health acoustics earns it. The case for the premium is the segment quality, design-in stickiness, margin expansion to 43.8% gross, and structural hearing-health demand. The case against is the magnitude: 62x operating income and a 13-year implied duration are a lot to pay for a business management guides to mid-single-digit segment growth. With net debt near $163 million and modest free cash flow, the valuation leaves little room for the policy or cyclical disappointment the bear case describes. This is a quality-premium price that requires the durability to be exceptional, not merely good.

Catalysts

Q1 2026 (reported April 2026) was a strong operational quarter: revenue up 16% year over year to $153.1 million, with Precision Devices at $85.1 million and MedTech & Specialty Audio at $68.0 million, up 14%. Gross margin expanded to 43.8% from 40.3%, and non-GAAP EPS from continuing operations rose 50% to $0.27, though GAAP diluted EPS of $0.13 missed some expectations. The next quarterly prints test whether the margin expansion and double-digit revenue growth persist.

The guidance set the bar. Management guided MedTech & Specialty Audio to 2% to 4% growth for full-year 2026 and expressed confidence in adjusted EBITDA growth above its 10% to 14% target. The over-the-counter hearing-aid channel and emerging-market hearing-health access are the structural volume catalysts to watch on that segment, while defense and medtech demand drives Precision Devices.

The swing factors over the next 90 days are defense budget and procurement signals, given Precision Devices' exposure, the trajectory of the OTC hearing-aid market and whether it lifts or commoditizes component value, and continued margin progression. Capital allocation, including the roughly 2% annual share-count reduction and any bolt-on acquisitions in the higher-margin segments, is the other signal, since management has flagged growth through both organic initiatives and acquisitions.

Sources: StockTitan (KN Q1 2026 10-Q), Investing.com (Q1 2026 slides), Yahoo Finance and Quiver Quantitative (Q1 2026 earnings), The Globe and Mail, The Motley Fool (Q1 2026 transcript).

Peer Cohorts (Per Segment, With Filing Citations)

Precision Devices (reported)

MedTech & Specialty Audio (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

View the full interactive KN report on boothcheck