CTS Corporation (CTS), a maker of sensors and actuators, is blaming the target of a recent acquisition for the misstatement of its 2024 financials.

Though CTS blamed SkyQwest— which it acquired July 29, 2024— for overstating revenue and understating cost of sales, it’s clear the errors continued for months after the acquisition closed as CTS acknowledged the misstatements occurred:

“...both prior to and subsequent to the acquisition.”

The admission indicates CTS not only missed SkyQwest’s accounting trouble during due diligence but for months after the deal closed.

In its latest quarterly— filed nine months after the SkyQwest acquisition— CTS revealed that its 2024 financials:

—Overstated revenue $1 million, or 0.19%
—Overstated operating income $1.5 million, or 2.2%
—Overstated operating cash flow $1 million, or 1%

CTS says the errors are not material.

With an Enterprise Value (EV) of approximately $1.15 billion, CTS is priced as if it will grow annual sales to more than $1 billion, up from an estimated $533 million in 2025. To justify its current share price of $38.71 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates CTS must:

—Grow sales 8% annually between 2027-2034, faster than the company’s estimated 2025 and 2026 sales growth of 3.4% and 7%, respectively, and three-year average of 0.6%
—Increase NOPAT margin to 13%, versus our 2024 estimate of 11.2%
—Increase Invested Capital (IC) Turns to 1.1, up from our 2024 estimate of 0.85

Notably, the current share price also implies CTS increases Return on Invested Capital (ROIC) to 14.3% from our 2024 estimate of 9.4%: