FN

We rate Fabrinet (FN) as a Hold with a composite score of 62.1/100 at a current price of $586.00. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in momentum (82th percentile) and quality (60th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (32th percentile) and stability (46th percentile) tempers our overall conviction. We assign a Narrow Moat rating (48/100), High uncertainty, and Standard capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Fabrinet holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 62.1/100 places it at rank #491 in our full 7,333-stock universe. With a $12.8B market capitalization, Fabrinet operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

The near-term outlook is constructive, with revenue growing at 41% and momentum in the 82th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 32th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 12% (-30.5pp vs sector) narrow to operating margins of 10% (+8.3pp vs sector) and net margins of 9.9%, yielding a gross-to-net conversion rate of 82%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $586.00, Fabrinet is trading near fair value based on current fundamentals. Our value factor score of 59/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 52.0x (a 134% premium to the sector median of 22.3x), EV/EBITDA of 46.1x (at a premium), P/B of 9.0x, P/S of 5.1x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to Fabrinet. Key risk factors include elevated market sensitivity (beta of 1.87), elevated valuation multiple (P/E 52.0x) that leaves limited margin for error. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.87); elevated valuation multiple (P/E 52.0x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 46th percentile and quality factor at the 60th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate Fabrinet's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 17.2%, and the balance sheet is managed within acceptable parameters (D/E: 50%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Fabrinet falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Fabrinet receives a Hold rating with a composite score of 62.1/100 (rank #491 of 7,333). Our quantitative framework assigns a Narrow Moat (48/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 56/100.

Our analysis supports a neutral stance on Fabrinet. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.