Value
5.2/10data confidence 67%| Component | Sub-score |
|---|---|
| P/S | 5.8 |
| Fwd P/E | 1.5 |
| PEG | 10.0 |
| Analyst target | 3.0 |
- ▸Forward P/E: 68.6x
- ▸PEG: 0.09
MRCY · Why this verdict
Why Mercury Systems (MRCY) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results.
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VerdictSELL
Overall score4.3/10
ConfidenceMEDIUM
MacroNEUTRAL
TrendMatrix Research · core thesis
Engine thesis — one sentence
Quality metrics fall below the minimum acceptable threshold and the risk/reward geometry turns unfavorable at current prices, while near-total dependence on government customers amplifies program risk; only four consecutive earnings beats—with an average positive surprise near 186%—offer a counterweight to an otherwise challenged setup.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
At current prices, the potential gain to the near-term resistance target is roughly 3% while the potential drawdown is approximately 7%, making the reward-to-risk ratio well below a favorable threshold and leaving little margin of safety for new buyers. Price targets | The reward-to-risk ratio recovers above 1.5-to-1 through a price correction that resets the entry point or through a material upward revision of analyst targets. | →Stable |
| CounterStrong price momentum—above all major moving averages with a bullish MACD configuration—suggests the stock could push through near-term resistance and drive targets higher before any mean-reversion materializes. | ||
With approximately 97% of revenue tied to government customers and additional exposure through sole-source component suppliers, the business is highly vulnerable to budget cycles, program cancellations, or procurement shifts that cannot be easily diversified away. Bear case | Government customer revenue concentration falls below 90% as commercial revenue sources expand over the next 12 months. | →Stable |
| CounterDeep entrenchment in government programs creates long-cycle revenue visibility, high customer switching costs, and stable backlog characteristics that can underpin consistent revenue even in tighter budget environments. | ||
Fundamental business quality sits below the minimum floor required for a constructive position, with weak returns on assets and equity and no identified competitive moat, indicating the franchise lacks the durability to support the current valuation. Warnings | Return on assets and gross margin improve enough to push business quality above the minimum floor over the next 12 months. | →Stable |
| CounterA Piotroski F-Score of 8 out of 9 reflects sound financial health across multiple accounting dimensions, suggesting the quality concerns may be narrow and overstated. | ||
Four consecutive quarters of beating analyst estimates—with an average positive surprise near 186%—reflects a pattern of consistently under-promising and over-delivering that has created a durable sentiment premium and signals management discipline in guidance setting. Earnings | The earnings beat streak extends for at least two more quarters, with EPS surprises remaining positive. | →Stable |
| CounterSurprises of this magnitude likely reflect unusually depressed analyst estimates rather than structural outperformance; if the analyst community resets expectations materially higher, the beat cadence could collapse abruptly. | ||
At current prices, the potential gain to the near-term resistance target is roughly 3% while the potential drawdown is approximately 7%, making the reward-to-risk ratio well below a favorable threshold and leaving little margin of safety for new buyers.
→StablePrice targets
- Expectation
- The reward-to-risk ratio recovers above 1.5-to-1 through a price correction that resets the entry point or through a material upward revision of analyst targets.
CounterStrong price momentum—above all major moving averages with a bullish MACD configuration—suggests the stock could push through near-term resistance and drive targets higher before any mean-reversion materializes.
With approximately 97% of revenue tied to government customers and additional exposure through sole-source component suppliers, the business is highly vulnerable to budget cycles, program cancellations, or procurement shifts that cannot be easily diversified away.
→StableBear case
- Expectation
- Government customer revenue concentration falls below 90% as commercial revenue sources expand over the next 12 months.
CounterDeep entrenchment in government programs creates long-cycle revenue visibility, high customer switching costs, and stable backlog characteristics that can underpin consistent revenue even in tighter budget environments.
Fundamental business quality sits below the minimum floor required for a constructive position, with weak returns on assets and equity and no identified competitive moat, indicating the franchise lacks the durability to support the current valuation.
→StableWarnings
- Expectation
- Return on assets and gross margin improve enough to push business quality above the minimum floor over the next 12 months.
CounterA Piotroski F-Score of 8 out of 9 reflects sound financial health across multiple accounting dimensions, suggesting the quality concerns may be narrow and overstated.
Four consecutive quarters of beating analyst estimates—with an average positive surprise near 186%—reflects a pattern of consistently under-promising and over-delivering that has created a durable sentiment premium and signals management discipline in guidance setting.
→StableEarnings
- Expectation
- The earnings beat streak extends for at least two more quarters, with EPS surprises remaining positive.
CounterSurprises of this magnitude likely reflect unusually depressed analyst estimates rather than structural outperformance; if the analyst community resets expectations materially higher, the beat cadence could collapse abruptly.
Per-dimension breakdown
Quality
3.4/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 0.0 |
| ROA | 0.4 |
| Gross margin | 1.7 |
| Op margin | 1.3 |
| Net margin | 0.0 |
| Current ratio | 9.8 |
| Moat | 5.0 |
| Piotroski F | 8.9 |
- ▸No competitive moat
- ▸Strong Piotroski F-Score: 8/9
Growth
5.4/10data confidence 33%| Component | Sub-score |
|---|---|
| Rev growth | 5.4 |
Momentum
2.5/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 5.5 |
| MACD | 0.0 |
| OBV | 1.0 |
| MA position | 6.0 |
| Volume | 0.0 |
- ▸Volume distribution (falling OBV)
- ▸Above 200-day MA
Sentiment
4.7/10data confidence 100%| Component | Sub-score |
|---|---|
| Analyst rating | 5.0 |
| Price target | 4.1 |
| erm sentiment | 5.0 |
Insider
3.9/10data confidence 75%| Component | Sub-score |
|---|---|
| materiality | 4.5 |
| insider conviction | 2.0 |
| holder change | 5.1 |
- ▸Modest insider selling — $2,040,852 (0.032% of mkt cap)
Peer rank
2.1/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 3.8 |
| quality rank | 2.1 |
| growth rank | 2.4 |
Technical
6.5/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 7.6 |
| support resistance | 5.7 |
| 52w position | 7.7 |
| gap | 5.0 |
Risk (lower is worse)
3.6/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 5.4 |
| days to cover | 2.5 |
| volatility | 0.0 |
| put call | 0.0 |
| implied vol | 2.6 |
| max pain risk | 3.0 |
| beta | 7.3 |
| debt equity | 8.2 |
- ▸Elevated put/call: 8.22
- ▸High IV: 64%
- ▸Above max pain $42
- ▸Concentration risks: 2 HIGH (10-K Item 1A — sized via position_sizing, validated via buy_confidence)
Catalyst
7.5/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 5.0 |
| earnings history | 10.0 |
| earnings timing | 5.0 |
| surprise avg | 10.0 |
- ▸Perfect beat streak: 4Q
How the verdict was assembled
Engine trigger
Quality below minimum threshold.
Engine technical detail
verdict_path:
L1:HARD_BLOCKPassed (6)
- INSIDER:OK
- 8K:CLEAN
- NEWS_EVENTS:NONE_RECENT
- EARNINGS_PROXIMITY:47d clear
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (2)
- MOMENTUM:2.5<4.5
- ASYMMETRY:-1.4=NEGATIVE
Warning (0)
none
Reward-to-Risk
-1.38
Upside
-18.3%
Downside
13.2%
Sizing output
AVOID
SetupUNKNOWN — No clear chart pattern; technical signals are mixed
EdgeNO_EDGE — No clear edge identified
SuitabilityMODERATE — Balanced profile
Investment implication
The L1 gate blocked the positive-verdict path: a hard-floor threshold was breached, so dimensional pillars — including Catalyst at 7.5 could not lift the engine output above the verdict floor. Failed gate signal: MOMENTUM:2.5<4.5.
The strongest dimensions are Catalyst at 7.5, Technical at 6.5, and Growth at 5.4; the weakest are Peer rank at 2.1, Momentum at 2.5, and Quality at 3.4. The V9 engine flagged 2 failed gates, producing an asymmetric reward-to-risk of -1.38 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1Fundamental business quality sits below the minimum floor required for a constructive position, with weak returns on assets and equity and no identified competitive moat, indicating the franchise lacks the durability to support the current valuation.
Trip ifBusiness quality score rises above 4.0 for 2 consecutive quarters.
- P2With approximately 97% of revenue tied to government customers and additional exposure through sole-source component suppliers, the business is highly vulnerable to budget cycles, program cancellations, or procurement shifts that cannot be easily diversified away.
Trip ifGovernment customer revenue concentration falls below 85%.
- P3Four consecutive quarters of beating analyst estimates—with an average positive surprise near 186%—reflects a pattern of consistently under-promising and over-delivering that has created a durable sentiment premium and signals management discipline in guidance setting.
Trip ifEPS surprise falls below 0% for 2 consecutive quarters.
- P4At current prices, the potential gain to the near-term resistance target is roughly 3% while the potential drawdown is approximately 7%, making the reward-to-risk ratio well below a favorable threshold and leaving little margin of safety for new buyers.
Trip ifReward-to-risk ratio rises above 1.5-to-1.