Knowles: 3 Key Takeaways for Long-Term Investors

Knowles reported third-quarter 2026 revenue of $184 million, up 20% year over year, driven by strong demand for specialized electronic components across defense, medical, and industrial markets. The company's Precision Devices segment, which makes custom capacitors and radio frequency filters, saw order volume reach nearly $180 million, resulting in a book-to-bill ratio of 1.5—meaning orders exceeded shipments by 50%.

This surge in orders has pushed manufacturing lines near maximum output, prompting Knowles to expand capacity across most Precision Devices product lines, with new facility capacity expected in 2027. Management also outlined three strategic paths to expand its total addressable market: developing new components like power attenuators, adapting core pulse-power products for new industrial clients, and increasing component count within existing hearing health equipment.

On the profitability front, Knowles is targeting 30% operating margins (EBITDA) through gross margin expansion of 100 basis points annually and operating leverage of 50 to 100 basis points as volumes grow. The company also repurchased $25 million in stock during the quarter, reflecting confidence in its outlook.

Looking ahead, management emphasized a robust pipeline of design wins and close customer collaboration, supported by proprietary engineering capabilities that provide a structural edge. Higher production throughput and disciplined capital allocation are expected to reinforce the long-term growth trajectory.

The 1.5 book-to-bill ratio is a strong leading indicator of future revenue growth. With a backlog of signed orders and capacity expansion underway, Knowles has good visibility into continued top-line momentum into 2027. This is particularly important as it suggests the current growth is not a one-time spike but part of a multiyear upcycle in defense, medical, and industrial markets.

The three strategic paths to expand the addressable market demonstrate management's proactive approach to sustaining growth beyond core products. By leveraging existing technologies into new applications and customers, Knowles can potentially capture additional revenue without relying solely on market growth. This diversification also reduces concentration risk.

The focus on margin expansion is equally critical. Achieving 30% EBITDA margins would represent a significant improvement in profitability, driven by operating leverage as revenue scales. This combination of revenue growth and margin expansion could lead to disproportionate earnings growth, which is a key driver of long-term stock performance.

However, investors should note that capacity expansion requires capital expenditures and execution risk. The new facility coming online in 2027 must ramp efficiently to meet demand. Additionally, the cyclical nature of defense and industrial markets could impact order patterns. Nonetheless, the current momentum and strategic initiatives position Knowles well for multiyear compounding.