Is CPS's Low Valuation a Strong Reason to Invest in Its Stock?

CSP Inc. CSPI operates in a fast-moving, highly competitive tech landscape where rapid innovation heightens both opportunity and risks. Its IT integration and VAR business faces pricing pressure from large national providers and OEMs, while its cybersecurity segment competes against well-funded global players.

At the same time, macroeconomic and geopolitical uncertainties, including global conflicts, shifting trade policies, new U.S. tech tariffs, currency swings and supply-chain volatility, add complexity. Despite these challenges, CSPI continues to strengthen its position through focused product expansion and disciplined execution.

Over the past year, the broader technology services sector has benefited from improving sentiment around digital transformation and cybersecurity spending. Within this environment, CSP’s stock performance has been notable. Shares have declined 29.3% over the past six months, outperforming Agilysys, Inc.’s AGYS 33.8% fall, though trailing International Business Machines Corporation’s IBM 6.7% decline.

Although CSPI shares have declined over the said period, the pullback does not suggest the company has faded from the spotlight; rather, it reflects a transitional phase as investors reassess its evolving business mix and long-term cybersecurity growth potential.

AZT PROTECT Expansion & Strategic Partnerships Support Scalable Growth

A key driver of CSPI’s momentum is the continued expansion of its AZT PROTECT cybersecurity solution. The company added AZT site customers in the first quarter of fiscal 2026 and now serves 46 unique customers, several of which have expanded deployments across multiple locations. This “land-and-expand” strategy is critical. Initial deployments at single sites are increasingly leading to rollouts at second and third locations, laying the groundwork for deeper, recurring customer relationships.

In parallel, CSPI is integrating AZT PROTECT into Acronis’ platform. This partnership has the potential to significantly broaden distribution beyond CSPI’s direct sales efforts, opening access to a scalable OEM channel. If execution continues as planned, this embedded model could accelerate recurring, higher-margin cybersecurity revenues over time.

Importantly, these initiatives are backed by financial flexibility. With $24.9 million in cash on the balance sheet, CSPI maintains the liquidity needed to support product development, marketing expansion and strategic growth investments without immediate balance sheet strain. This capital cushion provides management with optionality as the AZT platform scales.

High-Performance Products Segment Adds Profitability Leverage

While cybersecurity expansion is central to the long-term narrative, CSPI’s High-Performance Products (HPP) segment is delivering meaningful near-term earnings support. In the most recent quarter, total HPP sales surged 98% year over year. Even more notable was margin expansion, with the segmental gross margin rising to 73% from 50% in the prior-year period.

This improvement was driven primarily by high-margin Multicomputer software licenses and Myricom hardware sales. The performance underscores that CSPI continues to monetize its legacy high-performance computing portfolio effectively, even as it pivots toward services and cybersecurity growth. The HPP segment’s strong margins provide an earnings buffer and enhance overall profitability, helping offset the investment phase associated with scaling AZT PROTECT.

Valuation Reflects Growth Expectations

CSPI currently trades at 1.96X on a forward 12-month price-to-book basis, representing a significant discount to the industry average of 5.43X. The current discounted valuation provides a margin of safety, particularly given the company’s improving profitability profile, expanding recurring revenue base and strong balance sheet.

Conclusion

CSP stands at an inflection point. Despite operating in a competitive and geopolitically uncertain environment, the company is demonstrating tangible progress in scaling its AZT PROTECT cybersecurity platform while simultaneously strengthening profitability in its HPP segment. Supported by a solid balance sheet and expanding recurring revenue opportunities, CSPI is positioning itself for sustainable long-term growth.

Importantly, the stock currently trades at a meaningful discount to the broader industry, suggesting that the market has yet to fully price in the company’s improving fundamentals and recurring revenue potential. For investors willing to look beyond near-term volatility and focus on strategic execution, CSP presents an attractive growth opportunity. Based on its expanding platform, improving margins and scalable partnership strategy, the stock merits a buy.

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This article originally published on Zacks Investment Research (zacks.com).

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