Q

Qnity is a genuinely good business trading at a bad price. As a ~50-year semiconductor-and-electronics materials supplier levered to real megatrends — AI, high-performance computing, advanced packaging, higher PCB layer counts — it grew FY2025 net sales 9.7% to $4.75B and converted that into robust cash: $1.27B operating cash flow (+20%) against just $285M capex, roughly $985M of free cash flow. The problem is that revenue growth is not reaching the bottom line. The MD&A shows the top line is almost entirely volume-driven (+11% total volume) while local price and product mix fell in BOTH segments (Semiconductor Technologies -1%, Interconnect Solutions -2%). Cost of sales stuck at 54% of net sales, and rising R&D (+12.7%) and SG&A absorbed the rest — so net income crept up just 0.7% to $729M and diluted EPS actually slipped to $3.30 (-0.3%). You are paying 43x earnings and 6.3x sales for a company whose earnings did not grow.

That valuation/growth mismatch is the core of the sell case. A 43x multiple is a growth multiple; flat EPS is not a growth profile. On any growth-adjusted view the stock is priced for an acceleration in earnings that the filing does not yet evidence — pricing is deflationary, not inflationary, and margins are flat. Meanwhile the balance sheet was materially reshaped by the Spin-Off/Separation: total liabilities jumped 386.9% and stockholders' equity fell 33.3% as the company took on $4.10B of long-term debt in connection with the Distribution. Retained earnings reset to just $18M. Debt is still moderate (liabilities/equity 0.94x, $915M cash, ample FCF to service it), but this is a newly standalone, freshly levered entity — and management explicitly warns the carve-out historicals 'may not be indicative of our future performance,' so the multi-year trend line carries less weight than it appears to.