Security and healthcare technology company OSI Systems (NASDAQ: OSIS) fell short of the market’s revenue expectations in Q2 CY2026, with sales falling 4.1% year on year to $484.1 million. The company’s full-year revenue guidance of $1.90 billion at the midpoint came in 2% below analysts’ estimates. Its non-GAAP profit of $3.78 per share was in line with analysts’ consensus estimates.

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Company Overview

With security scanners deployed at airports and borders worldwide and patient monitors used in hospitals across the globe, OSI Systems (NASDAQ: OSIS) designs and manufactures specialized electronic systems for security screening, patient monitoring, and optoelectronic applications.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $1.79 billion in revenue over the past 12 months, OSI Systems is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, OSI Systems’s 9.3% annualized revenue growth over the last five years was impressive. This is a great starting point for our analysis because it shows OSI Systems’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. OSI Systems’s annualized revenue growth of 7.7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

We can better understand the company’s revenue dynamics by analyzing its most important segment, Security. Over the last two years, OSI Systems’s Security revenue (inspection systems) averaged 6.6% year-on-year growth.

This quarter, OSI Systems missed Wall Street’s estimates and reported a rather uninspiring 4.1% year-on-year revenue decline, generating $484.1 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 9.3% over the next 12 months, an improvement versus the last two years. This projection is admirable and implies its newer products and services will catalyze better top-line performance.

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Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

OSI Systems has managed its cost base well over the last five years. It demonstrated solid profitability for a business services business, producing an average adjusted operating margin of 13.3%.

Looking at the trend in its profitability, OSI Systems’s adjusted operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, OSI Systems generated an adjusted operating margin profit margin of 15.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

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.

OSI Systems’s EPS grew at 14.3% compounded annual growth rate over the last five years, higher than its 9.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into OSI Systems’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, OSI Systems’s adjusted operating margin was flat this quarter but expanded by 1.5 percentage points over the last five years. On top of that, its share count shrank by 8.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For OSI Systems, its two-year annual EPS growth of 13.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, OSI Systems reported adjusted EPS of $3.78, up from $3.24 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects OSI Systems’s full-year EPS to grow 9.3% from $10.38 to $11.35.

Key Takeaways from OSI Systems’s Q2 Results

We struggled to find many positives in these results. Its revenue missed and its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 11.6% to $196.03 immediately following the results.

OSI Systems didn’t show its best hand this quarter, but does that create an opportunity to buy the stock right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).