PC Connection (CNXN) Stock Price Slips Despite Record Q3 Earnings

PC Connection entered this Q3 2026 report with a quietly strong reputation as a steady information technology reseller, yet the immediate share price response told a different story. The stock slipped about 1% to US$85.62 after the release. That move understates what the numbers actually showed. Net sales reached US$874.3m and diluted earnings per share landed at US$1.24, both tied to record quarterly performance in core information technology hardware and services.

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Q3 2026 Earnings Summary

• Revenue (Q3 2026 vs. Q3 2025): US$874.3m vs. US$709.1m (up about 23%)
• Net Income (Excl. Extra Items, Q3 2026 vs. Q3 2025): US$31.5m vs. US$24.7m (up about 27%)
• Basic EPS (Q3 2026 vs. Q3 2025): US$1.25 vs. US$0.98 (up about 27%)
• Operating Margin (Q3 2026): 4.7% with operating income of US$41.0m on net sales of US$874.3m

AI demand just helped push PC Connection’s Enterprise backlog to a record. Ask Charlie what’s behind PC Connection’s record Enterprise backlog.

PC Connection’s AI Mix Shift Under the Microscope

Supporters argue PC Connection can turn AI demand and vendor kudos into a richer services mix and better profitability.

"Ongoing shift in customer demand from commodity hardware toward integrated IT solutions and managed services, reinforced by recognition as Dell’s 2026 North America Channel Services Sales Partner of the Year and Broadcom’s VMware Americas Rising Star Partner of the Year for 2025, supports a mix shift toward higher-margin offerings that can lift net margins."

Q3 shows part of that story working. Record gross profit of US$161.9m, record Enterprise gross profit, and SG&A efficiency lifted operating margin to 4.7%. Yet gross margin slipped 110 bps to 18.5% as lower margin endpoints carried more weight, so the services mix shift is not yet dominating the P&L.

Cash Conversion And Earnings Quality Risk Tested

The bear case focuses on weak cash generation and the idea that recent strength is more timing boost than durable trend.

"Cash flow volatility and pressure on working capital, which is already visible in the recent use of US$49.5m in operating cash due to higher inventory and an US$80.6m increase in receivables, could persist and limit PC Connection’s ability to convert earnings into free cash flow and support capital returns."

Q3 results keep that concern alive. Net income climbed to US$31.5m and trailing 12‑month adjusted EBITDA reached US$155.2m, yet year to date operating cash still shows a US$39.8m use as receivables and inventory build to support record billings and backlog. Capital returns continue but remain modest relative to earnings power.

One Narrative disagrees with today's price. → See where this Narrative says PC Connection should trade.

Hunt For Mispriced Earnings Power

PC Connection recently reported earnings strength that did not immediately align with its share price reaction. The real opportunity sits in stocks that could be undervalued before expectations catch up.

• Company 1 - 43% below our estimate - expand large-format LED systems as advertising, transport authorities and youth sports venues replace static signs with software-tied screens.
• Company 2 - 40% below our estimate - add storage and inverter offerings so long-lived tracker projects anchor a broader hardware and software revenue stack.
• Company 3 - 20% below our estimate - grow teahouse memberships while shifting mix toward franchise support services that raise network sales without matching capital spend.

That is three of the list. See all 30 potentially undervalued companies →

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