Will This Hot CyberSecurity Stock Keep Soaring?

IT solutions provider CSP Inc. (CSPI) has been thriving this year, making significant strides in its cybersecurity business. But does it have more room to run?

While CSP is not a pure-play cybersecurity stock and provides different IT services and solutions, the stock is enjoying a lot of investor attention at the moment, with promising developments intended to capitalize on the high demand for security products. The stock has gained more than 240% over the past year and approximately 450% over the past two years. Interestingly, the stock has doubled investors’ money in just two-and-a-half months this year. 

In an attempt to make its stock look less pricey and increase liquidity, CSP recently executed a two-for-one split in the form of a 100% stock dividend on its common stock. The stock will start trading on a split-adjusted basis on March 21.

While the lower price tag could drive some more investor interest in the stock, is that enough to sustain its momentum? 

Key Points

• CSP Inc. has witnessed significant growth, with its stock price increasing over 240% in the past year, fueled by expanding interest in its cybersecurity offerings.
• After pausing dividends during the pandemic, CSP resumed with a lower rate and has been increasing payouts.
• CSP implemented a two-for-one stock split to lower its share price and boost liquidity, aiming to attract additional investors by making shares more affordable.

Is Business Growing?

CSP is currently in the recovery phase after the global pandemic. Since fiscal 2021, the company’s total sales have grown, although they are still lower than pre-pandemic levels. In fiscal 2023 (ended September 30, 2023), total sales were $64.65 million, increasing 19% from the prior year.

The company’s Technology Solutions segment drives its top line, accounting for close to 90% of total sales in the last fiscal year. The segment’s total sales rose 14% year-over-year to $57.77 million. Meanwhile the High-Performance Products segment is growing more aggressively with total sales rising by 79% from fiscal 2022 to $6.87 million.

In the fiscal year 2023, the company grew operating income from a loss of $40,000 in the prior-yearly period to an income of $1.87 million. CSP’s bottom line has also recovered significantly from the net loss of more than $1 million posted in fiscal 2020 to $5.20 million in fiscal 2023, exhibiting a year-over-year growth of 176%.

However, the growth trajectory hit a speed bump in the last quarter. For the fiscal 2024 first quarter (ended December 31, 2023), the company’s total sales decreased 16% from the prior-year quarter to $15.38 million due to lesser-than-expected quarterly contract realizations. The company also reported a net loss of around $73,000, compared to a net income of $961,000 in the prior-year period.

Dividend Investors Rewarded

The company has a long history of paying dividends. However, that legacy faced disruption during the global pandemic when it stopped its dividend payments after the $0.15 per share quarterly payment in March 2020. CSP reinstated its quarterly dividend after two years at a much lower rate of $0.03 per share on the back of a record gross backlog.

Since then, the Board of Directors has been raising dividend payouts. In the last quarter, a dividend of $0.05 per share was declared and paid to shareholders on March 8. Its forward annual dividend of $0.20 yields 0.42% on prevailing prices.

Considering the fact that the company reported a loss in the last quarter, the sustainability of dividends is doubtful.

Do Prospects Look Rosy?

In July 2023, CSP launched Aria Zero Trust PROTECT (AZT PROTECT), a patented AI-driven approach to immediately protecting operational technology (OT) environments from cyber threats on a protected device.

This year, the company has already seen much hype in its High-Performance Products segment through the ARIA Cybersecurity Solutions set of offerings. Last month, CSP partnered with one of the biggest global cybersecurity solution firms to speed up the adoption of AZT PROTECT.

Furthermore, the cybersecurity solution has also bagged a multi-million-dollar deal from a Fortune 500 pharmaceutical company to protect its 40 facilities from cyberattacks. Such deals register a significant endorsement value of the product.

Last month, CSP’s Technology Solutions segment signed another multi-million-dollar agreement. A prominent public college in Florida awarded CSP a five-year contract to support the institution’s critical tech infrastructure.

Is CSP Expensive?

CSP is trading 46.34x GAAP trailing-12-month earnings, which is significantly higher than the industry average. When we consider past growth, its trailing-12-month PEG is 2.32.

While its expensive valuation and last quarter’s losses might spell a downside in the stock, the stock could be worth watching for its initiatives. Cybersecurity is a burgeoning market as cyberattacks become more prominent with technological proliferation. Given AZT PROTECT’s rising popularity, the company has a chance to tap into its prospective gains through its patented approach.