New Cliffside Report Illustrates Why PCM Has 40% Downside

PCM Inc PCMI shares are tumbling 5.0 percent on Tuesday after Cliffside Research released a damning new report suggesting PCM management may be involved in suspect business practices.

Cliffside believes much of PCM’s impressive 238.8-percent return in the past year comes from the company’s revenue growth. However, that growth has been entirely driven by acquisitions rather than its core IT solutions business.

“In fact, without acquisitions 2015 revenue would have declined 4.8 percent,” Cliffside wrote.

The firm believes the company’s negative revenue growth will return as soon as it runs out of acquisitions. Cliffside noted that hardware resale is a low-margin business with low barriers to entry and believes PCM has a very difficult path ahead.

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When Cliffside took a closer look at PCM’s recent acquisitions, the firm picked up on a disturbing trend. Cliffside found a lawsuit from 2011 that alleges that CEO Frank Khulasi “took investor money from a related company” to help inflate PCM’s financials. In addition, Cliffside discovered that PCM’s board has ties to two individuals accused of securities fraud, accounting fraud and insider trading. One of these individuals is currently serving as head of PCM’s audit committee.

“The company’s recent acquisitions have been associated with several seedy individuals involved in tax evasion and securities fraud, including insider trading and artificially inflating financial statements,” Cliffside wrote.

The firm is concerned that most PCM investors are unaware of these connections.

“The above factors combined with increased insider selling and a pause in corporate buybacks gives us confidence that the run in PCMI is nearing the end,” Cliffside concluded.

The firm has initiated a Strong Sell rating for PCM and set a $17.70 price target for the stock.