Aerospace and defense company Mercury Systems (NASDAQ: MRCY) reported Q2 CY2026 results topping the market’s revenue expectations, with sales up 6.1% year on year to $289.8 million. Its non-GAAP profit of $0.37 per share was 3.3% below analysts’ consensus estimates.

Is now the time to buy Mercury Systems? Find out by accessing our full research report, it’s free.

“We delivered fourth quarter fiscal 2026 results that were ahead of our expectations, with record bookings, record backlog, record revenue, the highest EBITDA margin of the year, and robust free cash flow," said Bill Ballhaus, Mercury’s Chairman and CEO.

Company Overview

Founded in 1981, Mercury Systems (NASDAQ: MRCY) specializes in providing processing subsystems and components for primarily defense applications.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Mercury Systems grew its sales at a weak 1.3% compounded annual growth rate. This was below our standards and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Mercury Systems’s annualized revenue growth of 8.5% over the last two years is above its five-year trend, suggesting some bright spots.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Mercury Systems’s backlog reached $1.9 billion in the latest quarter and averaged 14.4% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Mercury Systems’s products and services but raises concerns about capacity constraints.

This quarter, Mercury Systems reported year-on-year revenue growth of 6.1%, and its $289.8 million of revenue exceeded Wall Street’s estimates by 9.2%.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

ONE MORE THING: The $21 AI Application Stock Wall Street Forgot. While Wall Street obsesses over who’s building AI, one company is already using it to print money. And nobody’s paying attention.

AI chip stocks trade at ridiculous valuations. This company processes a trillion consumer signals monthly using AI and trades at a third of the price. The gap won’t last. The institutions will figure it out. You need to see this first. Read the FREE Report Before They Notice.

Operating Margin

Although Mercury Systems was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 3.3% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, Mercury Systems’s operating margin decreased by 3.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Mercury Systems’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q2, Mercury Systems generated an operating margin profit margin of 5%, down 3.6 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth — for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Mercury Systems, its EPS declined by 15.2% annually over the last five years while its revenue grew by 1.3%. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of Mercury Systems’s earnings can give us a better understanding of its performance. As we mentioned earlier, Mercury Systems’s operating margin declined by 3.2 percentage points over the last five years. Its share count also grew by 10.2%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Mercury Systems, its two-year annual EPS growth of 88% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q2, Mercury Systems reported adjusted EPS of $0.37, down from $0.47 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Mercury Systems’s full-year EPS to grow 42% from $1.06 to $1.51.

Key Takeaways from Mercury Systems’s Q2 Results

We were impressed by how significantly Mercury Systems blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its EPS missed. Overall, we think this was a decent quarter with some key metrics above expectations. Investors were likely hoping for more, and shares traded down 12.1% to $92.39 immediately after reporting.

Is Mercury Systems an attractive investment opportunity at the current price? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).