ISSC Surges 30% After a Strong Quarter — Is It Time to Exit?
50% up since the initial analysis
ISSC delivered an exceptional Q2, with revenue and earnings more than doubling — but after a 50% increase since my initial write-up, the key question now is whether we exit, hold, or add to the position.
Before we dive into the update, I’d love your quick input on which stocks you’d like me to cover in the future:
Here is my original analysis of ISSC 0.00%↑:
Better than Expected Results
In Q2 2025, ISSC released much better than expected results for the quarter, mostly driven by new military programs, the recently acquired Honeywell military product line, and growth in the air transport market (comparison to Q2 2024):
Net revenue of $21.9 million, +104%
Gross profit of $11.3 million, +102%; gross margin of 51.4%
Net Income of $5.3 million, or $.30 per diluted share, +340%
Adjusted EBITDA of $7.7 million, +219 %
Operating expense during the second quarter of twenty twenty five was $4.3 million, only a modest increase from $3.4 million last year, despite the significant growth in revenue, due to a higher mix of military sales (which have lower gross margin but the same EBITDA margin)
Backlog is still huge at $80 million
All the initiatives are going as planned, and the management still expects to achieve its target of >30% revenue and EBITDA growth:
The new ERP system implementation is done (to be compliant with DoD requirements to participate in larger programs)
The expansion of the facility (to increase capacity more than 3x) remains on track for completion by mid-year
The integration of the recently acquired Honeywell products continues, including the training of the workforce and the integration of the F-16 products into their facility
Concerning the Tariffs and Trade Uncertainty
This is what the CEO mentioned:
As a reminder, we manufacture 100% of our products in our Exton facility. With the ongoing trade uncertainty and priorities of the current administration, we should be in an enviable position, given the likely significant push for reshoring of manufacturing and an America First mentality. …
Although our most recent acquisitions have been focused on complementary product lines from larger avionics suppliers, we continue to evaluate opportunities to acquire small avionics manufacturers where we anticipate synergies will be realized by incorporating their outsourced production in our facility. …
And we also looking at some potentially foreign companies that we may buy and bring bring their production into United States.
Still a Volatile Micro-Cap
I like all these developments, but I am not adding to the position at the moment. The stock is already 50% up from the initial analysis, but we should remember that it is still a very volatile micro-cap stock. In the original analysis, I wrote:
Last quarter, ISSC beat expectations by 50% and the stock jumped 40%, this quarter they missed by 60% and the stock fell by 40%.
Now in Q2 2025, they again beat expectations by 150%, and the stock is up 30-40%.
This quarter’s results benefited from a partial acceleration of production and sales of Honeywell’s military product line in anticipation of Honeywell ceasing production at its own facilities and transitioning that production to the ISSC’s facilities.
The management expects this dynamic to continue in Q3, but the opposite can happen in Q4, when the transition is expected to happen:
Our results during the quarter benefited from some pull forward of revenues under our F-sixteen program. We expect this dynamic could repeat again during our third fiscal quarter in anticipation of Honeywell ceasing production at its own facilities and transitioning that production to the company's facility.
…
Q: And then for the Q3 kind of pull forward in revenue, would you expect that to be kind of similar magnitude or much smaller?
A: I think given that a good chunk of this is tied into Honeywell supply chain, it's really difficult for us to predict that. But I don't anticipate a huge swing.
…
Q: So then we should, at least sequentially in the fourth quarter, expect a fairly meaningful decline?
A: I don't expect a meaningful decline. You know, barring something goes completely wrong with the supply chain. I don't see there's we have 80,000,000 in backlog as of end of March. So, and, you know, as long as as long as we can execute and even for the transition, if it goes per plan that Honeywell has put in place and they get the material from the supply chain on time, there really shouldn't be much variations. But there was a lot of ifs there.
So, the speed of going through the backlog and pull forward effects can influence earnings in the next quarters in different ways. We could easily have a worse-than-expected quarter. Then the price could drop 40% again. This could be then a good point to add to the position.
But at the moment, I prefer to hold. The thesis is developing as expected, and I definitely don’t want to sell yet. I still want to see at least another 100% up.
Disclaimer:
Maksim Rodin and/or The Double Alpha-Factory own shares of ISSC at the moment of publication.
This article is for educational purposes only. This is not an investment advice. I may buy or sell these securities at any time. Please see full disclaimer here.
Great. They should go higher if well executed.