OSI SYSTEMS, INC. (OSIS): what the price assumes

In the published model solve dated 2026-Q2, anchored at $235.22, OSI SYSTEMS, INC. (OSIS) is priced for +8.5% growth. 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: 2026-08-10 · Exported: 2026-08-12 · Source: https://boothcheck.com/report/OSIS

Headline

What The Price Assumes (Inversion)

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

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 7.9% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.4pp.

Reconcile: at the x-ray's 9.3% required return this reads ~18%/yr; the models below use their own rates.

How unusual the bet is: within-range

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.

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 8.2%); the inversion above states its own rate.

Per-Model Detail (n=13)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

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

Bullet Takeaways

• At $222.66 the price pays about 20x company-wide operating income, which implies roughly 7.4% annual operating growth for five years. That near-term rate is within what OSI has recently delivered, so the bet is on duration, not heroics.
• The valuation families bracket the price rather than reaching far past it. DCF Exit Multiple lands at $220, Relative Valuation at $203, and EV/EBITDA Relative at $198, all near the price, while asset-based methods sit lower around $95 to $128.
• The growth is concentrated in Security. Q3 FY2026 revenue hit a record $453 million with a $1.9 billion backlog and a 1.3x book-to-bill, and Security revenue grew 25% excluding the Mexico contract. The bet is that airport, cargo, and border screening demand keeps converting backlog into sales.

Bull Case

Begin with where the price sits against the methods, because for OSI the answer is reassuring rather than alarming. At $222.66 the forward-growth and relative families land right around the price (DCF Exit Multiple $220, Relative Valuation $203, EV/EBITDA Relative $198), while the asset-based methods sit a notch below at $95 to $128. That spread says the market is paying a fair-to-modest premium for OSI's earnings, not a blue-sky multiple. The implied assumption confirms it: the price embeds about 7.4% annual operating growth for five years, a rate well within what OSI has recently delivered. The stretch is in how long the growth persists, not in the rate itself, which is the profile of a quality compounder rather than a momentum bet.

The engine driving that growth is the Security division, and the order book is the evidence. Q3 fiscal 2026 produced record revenue of $453 million, record non-GAAP EPS of $2.60, and a record $1.9 billion backlog at a 1.3x book-to-bill, with the entire backlog growth attributable to Security (OSI Q3 FY2026 release). Security revenue grew 25% year over year excluding the Mexico contract. The filings describe the structural tailwind: complex security and inspection orders carry long lead times, and the market for cargo inspection systems and turnkey screening services capable of inspecting shipping containers, trucks, and rail cars is growing (FY2025 10-K, accession 0001410578-25-001887). A 1.3x book-to-bill means orders are coming in faster than revenue is recognized, which is the cleanest forward signal a capital-equipment business offers.

The balance sheet and the multi-segment structure support the durability case. Interest coverage is about 30x on trailing operating income near $218 million, and net debt of roughly $657 million is modest against a company of this earnings power. Beyond Security, OSI runs Healthcare (patient monitoring) and an Optoelectronics manufacturing arm, which gives it diversification and a captive components supply for its own systems. Pilot projects in remote employee screening for aviation and cargo facilities are an intermediate- to long-term growth option on top of the existing backlog. Against a cohort of electronics and infrastructure names like Vertiv and Monolithic Power, OSI is the one with a hard-to-replicate installed base in regulated screening, where switching costs and certification barriers protect the franchise.

Bear Case

The bear case starts with competition and customer concentration rather than the multiple. OSI's growth is overwhelmingly a Security story, and Security sells big-ticket inspection systems into a contract-driven market where a handful of large government and airport awards swing the results. Vertiv, a peer in the cohort, illustrates how order-book disclosure can mask lumpiness: it defines backlog as product and service orders received but not yet delivered (Vertiv FY2025 10-K, accession 0001674101-26-000008), and the same dynamic applies to OSI. When a single large contract rolls off, as the Mexico turnkey program is doing, reported growth can swing sharply, and OSI has had to point investors to ex-Mexico figures to show the underlying trend. Concentration in government screening contracts means the revenue stream is exposed to budget cycles and procurement timing the company does not control.

The asset and earnings-power methods are blunt that the price is not cheap. Earnings Power Value, which asks what OSI is worth at normalized operating earnings with no growth, lands at $66 against the $222.66 price (June 27, 2026), and ROIC-Justified P/B comes in near $17, reflecting a current return on invested capital the model reads as low. Several cash-flow-based methods are unreliable here because trailing free cash flow is thin, which is why the FCF-yield figures print as outliers and should be disregarded. The honest read is that the entire premium over the asset-based floor depends on the Security backlog converting at the expected pace and margin. If the book-to-bill normalizes back toward 1.0x, the growth that justifies a 20x operating-income multiple slows.

The cyclical-mix risk sits underneath all of it. OSI's screening demand is tied to airport throughput, global trade volumes, and government security budgets, all of which are cyclical and can soften together in a downturn. The stock has shown it is sensitive to disappointment, having fallen sharply after a prior earnings report (Yahoo Finance). The reverse-DCF range tops out near $472 in the high case but bottoms near $226 in the low case, essentially the current price, which means the market is already giving OSI credit for the favorable end of its own backlog conversion. There is little cushion if Security demand or margins disappoint.

Valuation

OSI is a case where the price sits in the middle of a fairly tight band, which is unusual and informative. The forward-growth and relative families cluster right around the $222.66 price (DCF Exit Multiple $220, Relative Valuation $203, EV/EBITDA Relative $198, Discounted Future Market Cap $195), while the asset-based methods sit a step below (Two-Stage Excess Return $127, Residual Income $128, Simple Excess Return $95).

The inversion is the cleaner anchor. At today's price the market pays about 20x company-wide operating income, implying roughly 7.4% annual operating growth for five years, computed at an 8% cost of capital with 4% terminal growth, where each point of cost of capital moves the implied growth about 7.3 points. The priced-in assumption reads as within range: the near-term growth rate is consistent with OSI's recent record, and the question is duration. The practical takeaway is that the price already credits steady backlog conversion at the demonstrated pace; the upside lives in OSI sustaining that pace longer than the five-year window assumes, and the downside lives in the Security order book normalizing.

Catalysts

OSI Systems reported record fiscal 2026 third-quarter results with revenue of $453 million, non-GAAP EPS of $2.60, and a record backlog of $1.9 billion at a 1.3x book-to-bill, with all of the backlog growth attributable to the Security business and Security revenue up 25% year over year excluding Mexico contract revenues (OSI Q3 FY2026 release). The company reiterated full-year fiscal 2026 guidance of $1.825 billion to $1.867 billion in revenue and non-GAAP diluted EPS of $10.30 to $10.55.

The forward calendar centers on backlog conversion and new screening wins. OSI cited several international wins for cargo and vehicle inspection systems and airport screening solutions, and it is running pilot projects in remote employee screening for aviation and cargo facilities that it frames as an intermediate- to long-term Security growth driver. Watch the quarterly book-to-bill ratio (a reading above 1.0x signals orders still outpacing shipments), the pace at which the $1.9 billion backlog converts to revenue, margin trends as the Mexico contract rolls off, and the Healthcare and Optoelectronics segments, which are smaller but provide diversification and captive component supply. The fiscal year ends in June, so the next data point is the Q4 and full-year fiscal 2026 print.

Peer Cohorts (Per Segment, With Filing Citations)

Security (reported)

• CRWD (CrowdStrike Holdings Inc)
• FY2025 10-K: …in the security industry. Additionally, as we look to enter into adjacent markets and expand our total addressable market, we may face new competitors. However, we do not believe any of our competitors currently have a true platform offering equivalent to the Falcon platform, which can be leveraged to win in legacy…
• FY2025 10-K: …market remains very competitive, and competition may further increase in the future. Competitors may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions. If our solutions fail or are perceived to fail to detect or prevent incidents or have or…
• PANW (Palo Alto Networks Inc)
• FY2025 10-K: Advanced URL Filtering, Advanced DNS Security, IoT/OT Security, GlobalProtect ® , Prisma Access Agent, Enterprise Data Loss Prevention ("Enterprise DLP"), AI for IT Operations ("AIOps"), Software as a Service ("SaaS") Security, and AI Access Security. Through these add-on services, our customers are able to secure…
• FY2025 10-K: …strategy combines various products and services into a tightly integrated architecture for more secure, faster, and cost-effective outcomes. Network Security Our network security platform is designed to deliver complete zero trust solutions to our customers. The platform includes: • Secure Access Service Edge…
• FTNT (Fortinet Inc)
• FY2025 10-K: …security and networking products. Our competitive differentiation lies in our core technologies, which together provide performance, security, flexibility and integration across diverse environments. • FortiOS -Our unified operating system enables the convergence of networking and AI-powered security to enforce…
• FY2025 10-K: …also attempt to fraudulently induce our employees to transfer funds or 27 Table of Contents disclose information in order to gain access to our networks and confidential information. Third parties may also send our customers or others malware or malicious emails that falsely indicate that we are the source,…
• ZS (Zscaler Inc)
• FY2025 10-K: …vendors, which offer a broad mix of network and endpoint security products; • large networking and other vendors, which offer security appliances and/or incorporate security capabilities in their networking products and other services; • companies with point solutions that compete with some of the features of our…
• FY2025 10-K: …dashboards and reporting and can stream logs to a third-party SIEM service as they arrive. Regardless of where users are located, customers can choose to have logs stored in the United States or the European Union/Switzerland. Customer data is isolated as part of our multi-tenant architecture. • Data Fabric for…
• S (SentinelOne Inc)
• FY2025 10-K: …alliance partners, MSPs, MSSPs, MDRs, OEMs, and IR firms. We provide our partners with our differentiated technology and platform to enable them to provide the best security service to their own customers. Our Singularity Platform offers our partners complete multi-tenancy and a superior level of management…
• FY2025 10-K: …including decisions by organizations to purchase security solutions from larger, more established security vendors or from their primary IT equipment vendors and insolvency or credit difficulties confronting our customers, affecting their ability to purchase or pay for our solution • the timing and length of our…
• OKTA (Okta Inc)
• FY2025 10-K: …a suite of security capabilities that protect our customers from different types of malicious traffic, including bots, breached passwords, suspicious IP addresses and brute force attacks. Attack Protection enables our customers to minimize risks associated with the ever-growing volume of identity-targeted attacks. •…
• FY2025 10-K: …across a range of devices. These integrations allow us to seamlessly deliver identity, access, security and management use cases that previously required significant custom development to achieve. Robust Security Security is essential for us and for our customers. Our approach to security spans day-to-day operational…
• QLYS (QUALYS, INC.)
• FY2025 10-K: IT and OT asset inventory in one browser window, without plugins or a virtual private network (VPN), whenever and wherever Internet access is available. • Easy global scanning. Our customers can easily perform scans on geographically distributed and segmented networks at the perimeter, behind the firewall, on dynamic…
• FY2025 10-K: …phishing attempts. We and our service providers and suppliers could be a target of cyber-attacks or other malfeasance designed to impede the performance of our solutions, penetrate our network security or the security of our cloud platform, products, or our internal systems, misappropriate proprietary information,…

Healthcare (reported)

• MASI (MASIMO CORP)
• FY2025 10-K: …Company to better understand operating results. Segment information presented herein reflects the impact of these changes for all periods presented. Selected information for the healthcare segment is presented below for each of the years ended January 3, 2026, December 28, 2024 and December 30, 2023: (in millions)…
• FY2025 10-K: …and worker health and safety laws; however, the risk of environmental liabilities cannot be completely eliminated. 21 Table of Contents Markets Competitive Conditions We compete in many healthcare electronic markets across the globe. These markets are highly competitive and are characterized by continual change and…
• NVCR (NovoCure Limited)
• FY2025 10-K: …payer (e.g., including private/commercial payors or cash-pay scenarios). Numerous federal and state laws and regulations, including the Health Insurance Portability and Accountability Act of 1996 as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH" and collectively "HIPAA"),…
• FY2025 10-K: …grant export approval for our devices; or • civil and/or criminal prosecution by the U.S. Department of Justice or other enforcement authorities outside of the U.S. To date, our facilities and those of our critical suppliers have been inspected by several relevant regulatory authorities in order to obtain regulatory…
• ICUI (ICU MEDICAL INC/DE)
• FY2025 10-K: …and activities that potentially harm customers; and state laws related to insurance fraud in the case of claims involving private insurers. These laws and regulations, among other things, constrain our business, marketing and other promotional activities by limiting the kinds of financial arrangements, including…
• FY2025 10-K: …lower reimbursements by governmental and private payors to our customers, which may adversely affect our business, financial condition and results of operations. EU Healthcare Reform Additional healthcare reform measures in the EU may be adopted in the future as well. For instance, in December 2021, Regulation (EU)…
• IRTC (iRhythm Holdings, Inc.)
• FY2025 10-K: …delay was due to a cybersecurity incident experienced by Change Healthcare, a division of UnitedHealth Group, in which the Company's third-party vendor did engage for services relating to billing and collections. While the Company substantially cleared the billing backlog as of the end of the first quarter of 91…
• FY2025 10-K: …that have already been issued on public health and healthcare topics include orders seeking to promote healthcare price transparency, deliver most-favored-nation pricing for prescription drugs to patients and facilitate direct-to-consumer drug sales, promote domestic production of pharmaceutical products, and expand…
• TNDM (Tandem Diabetes Care, Inc.)
• FY2025 10-K: …is considering proposed legislation intended to further reduce healthcare costs with alternatives to replace the expired ACA subsidies. In addition, on December 2, 2025, CMS finalized its proposed competitive bidding process for some medical equipment, including continuous glucose monitors and insulin pumps that…
• FY2025 10-K: …In addition to the laws discussed above, we may see more stringent state and federal privacy legislation passed, as the increased cyber-attacks during recent international conflicts have once again put a spotlight on data privacy and security in the U.S. and other jurisdictions. We cannot predict where new…
• MMSI (MERIT MEDICAL SYSTEMS INC)
• FY2025 10-K: …labor shortages and increases in labor costs; price and product competition; extreme weather events; and geopolitical events. For a further discussion of the risks and uncertainties and other factors affecting our business, see Item 1A. Risk Factors in this report and our subsequent Quarterly Reports on Form 10-Q.…
• FY2025 10-K: …industry closely, and that additional regulation by governmental authorities may increase compliance costs, exposure to litigation and other adverse effects on our operations. If we fail to comply with applicable regulatory requirements, we may be subjected to a wide variety of sanctions, including warning letters…
• GMED (GLOBUS MEDICAL, INC.)
• FY2025 10-K: …matters; • the Federal Trade Commission Act and similar laws regulating advertisement and consumer protections; • the FCPA, which prohibits corrupt payments, gifts or transfers of value to foreign officials; • the Physician Payment Sunshine Act, which requires medical device companies to report ownership and…
• FY2025 10-K: …with surgeons, hospitals and our independent distributors are subject to 34 Table of Contents scrutiny under these laws. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state healthcare programs,…

Optoelectronics and Manufacturing (reported)

• PLXS (PLEXUS CORP.)
• FY2025 10-K: …oversee and provide leadership to business development and customer relationship management teams, supply chain, engineering, manufacturing and sustaining services subject matter experts and market sector specialists. These teams maintain expertise related to each market sector and execute sector strategies aligned…
• FY2025 10-K: …could result in liability claims against us, reduced demand for our services and damage to our reputation. We design, manufacture and service products to our customers' specifications, many of which are highly complex and subject to demanding regulatory environments for market sectors that generally have higher risk…
• BHE (BENCHMARK ELECTRONICS, INC.)
• FY2025 10-K: …from the manufacturing operations of our current and future customers, who are continually evaluating the merits of manufacturing products internally against the advantages of outsourcing to EMS providers. In addition, in recent years, ODMs that provide design and manufacturing services to OEMs, have significantly…
• FY2025 10-K: …market opportunities and instead focus on low-to-medium-volume, high-complexity manufacturing programs, primarily within the A&D, semi-cap, medical, and industrial markets, which are often highly regulated and increasingly outsourced by OEMs. In the AC&C markets, we focus on customers with more complex requirements…
• CTS (CTS CORPORATION)
• FY2025 10-K: …operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results. These industries may be unionized and some of our customers have experienced labor disruptions in the past. Furthermore, these industries can be highly cyclical in nature and…
• FY2025 10-K: …on product features, technology, price, quality, reliability, delivery, and service. Most of our product lines encounter competition globally. The number of competitors varies across product lines. No one competitor competes with us in every product line, but some competitors are larger and more diversified than we…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

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.