Nanosonics (ASX:NAN) Revenue Up 9%, But Operating Leverage Still Missing

Nanosonics Investors Want Margin Accretion, This Half Did Not Deliver It

Nanosonics saw its share price fall 7% to around $3.35 today after what looked like a fairly moderate half year result. The business delivered broad based growth, but profitability was slightly softer, which is where the market seemed to focus.

Here is the quick snapshot.

• Revenue was $102.2 million, up 9% year over year, an $8.6 million increase.
• Gross profit rose to $78.0 million, up 6% year over year.
• Operating profit from operating activities came in at $8.4 million, down slightly from $8.7 million.
• Operating cash flow was $6.6 million, down from $21.2 million.

On the revenue line, management attributed the 9% growth to strength in both capital sales and recurring consumables and service revenue, with the uplift broadly spread across the group. That is a positive signal for demand and installed base activity.

The issue was what happened below the line. Gross profit increased, but gross margin fell, driven by product mix and the impact of tariffs following changes in April 2025. So even with stable top line growth, the company did not translate that into improving unit economics this half, and that appears to be the key concern that weighed on the share price.

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Cash Rich, Margin Pressured, The Near Term Debate

Expenses were broadly flat, but the bigger takeaway is that operating leverage still looked limited. As revenue grew, costs rose almost as fast, and with gross margin slipping, the business did not convert top line growth into meaningfully stronger profitability this half. The market responded accordingly.

It also feels consistent with what we are seeing across a lot of large caps right now, where investors are less willing to pay up for steady growth unless it is clearly translating into better margins and higher incremental returns. In that environment, multiple compression can show up quickly when a result is solid but not cleanly margin accretive.

On the positive side, the balance sheet remains a real strength. Cash closed at $159.8 million, which gives the company flexibility to keep investing while absorbing short term shocks such as tariffs, FX moves, and growth initiative spending. Management has been explicit that the balance sheet is a strategic asset and is there to support execution of the growth plan, not just to sit idle.

Nanosonics Balance Sheet Strength Holds

At this point, we would keep Nanosonics as a Hold.

The fundamentals and financial health of the business remain strong, and the balance sheet gives management plenty of flexibility. But in the near term, the market likely needs to be patient. The key thing we want to see is a clear improvement in operating leverage, where incremental revenue translates into a higher share of profit.

In other words, for the stock to re rate, margins need to stabilise and then improve, with profit growth at least tracking, and ideally outpacing, revenue growth. Until we see that margin and operating leverage inflection, the risk is the share price stays range bound even if the top line keeps moving in the right direction.