Sanmina (SANM 0.42%) investors awoke to disappointment Tuesday, and the industrial stock is down 7.3% through noon ET despite what appears positive news.
Deep in the heart of Texas, Sanmina Corporation plans "a major expansion of its Energy business with a new state-of-the-art factory in Houston." Opening in 2027, the new factory will target the U.S. energy market and be "capable of building a broad range of high-quality energy products, including: medium-voltage distribution transformers, instrument transformers and switchgear."
Sanmina also noted that it has signed an agreement with Croatia's Koncar Electrical Industry, to co-design a custom medium-voltage transformer that Sanmina can sell in the U.S.
Image source: Getty Images.
2027's not the problem. 2026 may be.
Again, this sounds like good news. So why has it sparked a wave of selling among Sanmina investors?
Part of the answer might be that investors don't like the idea of Sanmina sharing its profits with a partner. And after reviewing analyst forecasts for Sanmina, I noticed another potential concern. Although Sanmina is solidly profitable, with $4.46 per share earned last year and that number expected to rise both this year and next, free cash flow at Sanmina appears poised to take a significant hit in 2026.
Analysts polled by S&P Global Market Intelligence say Sanmina could burn up to $98 million this year, and perhaps as much as $288 million next year.
NASDAQ: SANM
Key Data Points
Is Sanmina stock a sell?
If already incorporated in the estimates, building the new Texas factory could be part of the reason for this cash burn. Or if not already incorporated, the new factory could cause Sanmina to burn even more cash next year.
Priced at 35 times earnings today, Sanmina already looks expensive. If it's burning cash, too, the stock could be even more expensive than it looks.
