OSI Systems: Proven Execution, Fully Valued

Tips E-21: A 1-minute summary of my fundamental analysis of OSI Systems Inc. (NASDAQ: OSIS)   

 

Investment Thesis

OSI Systems benefit from proven execution, secular growth exposure, and rising operating leverage, which have driven steady improvements in profitability and returns. However, optimistic assumptions are already embedded in the share price.

Main Business

OSI Systems operates as an integrated solutions provider across security, healthcare, and electronics manufacturing markets. Its core businesses include security screening systems, patient monitoring devices, and specialized electronics. Over the past decade, OSI has shifted from a product-centric model toward delivering integrated, mission-critical systems, with security now contributing over two-thirds of total revenue.

Growth

Revenue growth has consistently outpaced end-market expansion, supported by acquisitions, organic demand, and global diversification. From 2016 to 2025, revenue grew at an 8.2% CAGR, exceeding underlying market growth across all three segments.

Profitability

Profit growth significantly exceeded revenue growth, driven by operating leverage and disciplined cost management. PAT compounded at 20.6% annually over the same period, reflecting declining fixed-cost margins and improved scale benefits.

Financial Strength

Cash generation is solid, but rising leverage and high reinvestment rates raise capital allocation concerns.

Peer Performance

Among comparable security and healthcare technology firms, OSI ranked favourably in ROIC improvement and EPS growth. However, its free cash flow margin deteriorated sharply over time.

Valuation

Even under optimistic assumptions using a multi-stage FCFF model, intrinsic value estimates indicate OSI shares are fully priced.

For more insights and valuation details, refer to the original article on Seeking Alpha titled 

OSI Systems: Great Company, Poor Entry Point

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If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 

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I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

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