TSSI

TSSI has ridden the AI data-center buildout to a genuinely remarkable top line: revenue went from $27.4M (FY2021) to $246M (FY2025), +65.9% YoY, with FY2025 net income of $15.1M (+153.1%) and ROE of 19.7%. The balance sheet is far healthier than a year ago — $85.5M cash (+268.2%), equity rebuilt to $76.6M (+973.6%), and modest leverage at 1.41x liabilities/equity. On headline multiples the stock is not expensive for that growth: P/E 20.0 and P/S 1.3, a low PEG on the reported trajectory. The MD&A frames a structural tailwind — a US-based OEM signed a long-term AI-rack integration agreement in Oct 2024 with an expected minimum monthly volume, amended again in Dec 2025, giving contracted demand behind the numbers.

The problem is what sits beneath the headline. This is a low-margin services model: because most components are consigned by the OEM, revenue reflects only services, so gross margin is just 13.2% and operating margin only 2.6%. Critically, operating income grew only 9.6% on +65.9% revenue — the incremental sales are not converting to operating profit. Net income of $15.1M actually exceeds operating income of $6.32M by ~2.4x, meaning the bulk of the earnings that support the P/E come from below-the-line items (likely interest on the $85.5M cash and/or tax effects) rather than the core business. That is a material earnings-quality flag: the 'cheap' P/E rests on EPS that operations alone do not produce, and retained earnings are still -$45.2M.