What Happened?
Shares of custom-engineered solutions manufacturer Methode Electronics (NYSE: MEI) jumped 3% in the morning session after investors scooped up equities, shaking off the initial concerns inferred from the Fed's dot plot, with tech stocks leading the charge.
As a reminder, the Federal Reserve cut its benchmark interest rate by 25 basis points the previous day and signaled that more reductions could come before year-end and beyond. Initially when the cut was announced and Fed Chair Powell held his press conference, there was a pullback in the market as the Fed's "dot plot" revealed that only one cut was likely for 2026.
This was below the three cuts that had been priced into the markets. This was the first interest rate cut of 2025, a move investors had widely anticipated. In response to the decision, stocks rose significantly, positioning major indexes like the S&P 500 and Nasdaq to open at record levels.
The Fed's decision was influenced by signs of a weakening labor market. Lower interest rates are generally seen as positive for stocks because they reduce borrowing costs for businesses and make fixed-income investments like bonds less attractive by comparison, driving capital into the equity market. While Fed Chair Powell noted the path forward has risks, the prospect of looser monetary policy has fueled optimism on Wall Street.
After the initial pop the shares cooled down to $8.25, up 1.8% from previous close.
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What Is The Market Telling Us
Methode Electronics’s shares are extremely volatile and have had 36 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 8 days ago when the stock gained 8.8% on the news that the company reported second-quarter 2025 results that surpassed analyst expectations and reaffirmed its full-year financial guidance.
Although net sales fell 7% year-on-year to $240.5 million, the figure still topped Wall Street's forecasts. More impressively, Methode reported a non-GAAP loss per share of $0.22, beating the consensus estimate for a loss of $0.25. The positive surprise for investors was driven by operational improvements and cost reductions, which turned a prior-year operating loss into a small profit. This was reflected in the company's operating margin, which improved to 0.5% from negative 2.7% in the same quarter last year. Furthermore, Methode generated strong free cash flow of $18 million and reaffirmed its full-year revenue guidance of $900 million to $1 billion.
Methode Electronics is down 30.2% since the beginning of the year, and at $8.25 per share, it is trading 41.1% below its 52-week high of $14.02 from December 2024. Investors who bought $1,000 worth of Methode Electronics’s shares 5 years ago would now be looking at an investment worth $307.33.
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