What Happened:

Shares of electronic security systems manufacturer Napco Security Technologies (NASDAQ:NSSC) fell 20.4% in the afternoon session after short seller Fuzzy Panda Research published a report accusing the firm of accounting fraud, insider stock selling, and manipulating financial statements to inflate growth, with former employees backing up the claims. The stock's reaction suggests the market is worried the allegations could significantly damage the company's reputation.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Napco? Access our full analysis report here, it’s free.

What is the market telling us:

Napco’s shares are somewhat volatile and over the last year have had 16 moves greater than 5%. But moves this big are very rare even for Napco and that is indicating to us that this news had a significant impact on the market’s perception of the business.

The previous big move we wrote about was 10 days ago, when the company dropped 18.4% on the news that the company announced underwhelming second-quarter earnings results. Adjusted EBITDA missed, EPS was roughly in line, while revenue beat by a small amount. Overall, this was a mixed quarter, and the stock's reaction suggests expectations were high heading into the earnings announcement.

Napco is up 3.3% since the beginning of the year, but at $34.79 per share it is still trading 40% below its 52-week high of $58 from August 2024. Investors who bought $1,000 worth of Napco’s shares 5 years ago would now be looking at an investment worth $2,712.

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