CSP Inc. (CSPI), a little-known player in the vast cybersecurity landscape, might be on the cusp of something big. While the latest earnings call focused on the successful launch of their revolutionary AZT PROTECT offering, there's a hidden trend buried in the transcript that hints at a silent revolution happening within the company – one that could catapult them into the big leagues.

What caught my attention wasn't the impressive multi-million dollar contract they snagged with a global pharmaceutical company (although, that's certainly noteworthy). It wasn't even the steady hum of their Technology Solutions business, which continues to churn out consistent revenue. What truly piqued my interest was the subtle, almost off-hand remark Victor Dellovo, CSPI's CEO, made about receiving inquiries to acquire or invest in their Technology Solutions (TS) group.

Now, fielding acquisition inquiries isn't necessarily groundbreaking. However, the context in which Dellovo mentioned these inquiries is significant. It wasn't in response to a direct question, but rather a seemingly casual observation woven into the larger narrative of CSPI's growth. He downplayed these inquiries, stating their focus is on 'building the business' and increasing monthly recurring revenue. But the mere fact that these conversations are happening speaks volumes about the underlying value of the TS group.

Think about it: CSPI's TS group, which primarily provides managed IT services, has quietly become an attractive asset in a rapidly consolidating industry. While all eyes are on the shiny new AZT PROTECT offering, the TS group has been diligently building a loyal customer base, achieving a customer retention rate exceeding 90%. This kind of stability is gold in the turbulent world of technology, making them an enticing target for larger players looking to expand their managed services portfolio.

Here's the kicker: CSPI currently boasts a market capitalization of just $144 million. If the TS group is generating genuine acquisition interest, it could be worth a significant portion of that market cap – potentially hundreds of millions of dollars. This hidden value is likely flying under the radar of most analysts, who are understandably captivated by the potential of AZT PROTECT.

Let's do some back-of-the-envelope calculations. The TS group accounted for $14.7 million in revenue in the first quarter of fiscal 2024. Assuming an annual revenue run rate of approximately $60 million and applying a conservative 5x revenue multiple (common for managed services businesses), the TS group could be valued at around $300 million. This is more than double CSPI's current market cap!

Of course, this is a rough estimate, and the actual value of the TS group will depend on a multitude of factors, including profitability, growth prospects, and market conditions. However, it highlights the potential disconnect between CSPI's perceived value and its intrinsic worth.

Here's the hypothesis: as AZT PROTECT gains traction and CSPI's profile rises, the quiet strength of their TS group will become increasingly apparent to larger players. This could lead to more serious acquisition talks, potentially unlocking significant value for shareholders.

Adding fuel to the fire is the fact that CSPI's CEO is a savvy operator with a track record of creating shareholder value. He personally bought stock in the previous quarter, demonstrating his confidence in the company's future. Furthermore, the recent 2-for-1 stock split, a move often employed to attract institutional investors, suggests a deliberate effort to broaden their shareholder base and increase market awareness.

This confluence of factors – the undervalued TS group, the groundbreaking AZT offering, a strategic stock split, and a CEO with skin in the game – paints a compelling picture of a company poised for explosive growth.

Revenue Breakdown by Business Segment

The following table showcases the revenue contributions of CSPI's Technology Solutions (TS) and High Performance Products (HPP) segments over the last two quarters, based on data from their earnings calls.

While it's impossible to predict the future, the evidence suggests that CSPI is quietly building a powerhouse in the cybersecurity industry. The potential for a major acquisition or strategic investment, combined with the disruptive force of AZT PROTECT, could turn this under-the-radar stock into a market darling. Keep your eyes on CSPI – they might just be the sleeper hit of the cybersecurity sector.

"Fun Fact: CSPi has been around since 1968, originally focusing on developing signal processing technology for the defense industry. Talk about a career pivot!"