ScanSource’s Sales Slip Fuels Volatility Spike

Revenue decline pressures margins as the distribution model strains

SCSC ScanSource, Inc.

In this report

01

Company Profile & Classification

Sector, moat, style, market positioning

P. 2

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02

Equity Performance & Market Positioning

Returns, risk metrics, smart money positioning

P. 3-4

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03

Revenue, Earnings & Margin History

Growth trajectory, margins, EPS, cost structure

P. 5-6

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04

Profitability & Return on Capital

DuPont, ROIC, efficiency, asset turnover

P. 7-9

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05

Balance Sheet & Cash Flow Health

Liquidity, solvency, cash flow, FCF statistics

P. 10-12

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06

Executive Insights & Key Takeaways

Summary and investment implications

P. 13

→

Company Profile & Classification

SCSC — ScanSource, Inc.

Technology · Technology Distributors $964.20M · Small Cap B2B/B2C Platform

Business & Competitive Position

💰 Revenue Model Technology Services

🏗️ Asset Profile Asset-Light

🛡️ Economic Moat

No Moat (Competitive Market)

🔒 Unknown

📈 Pricing Power

Strong

🏆 Market Position Emerging Player

Growth & Valuation

🎯 Invest Style

Value Blend Growth Quality

🚀 Growth

Declining Low Moderate High

📊 Revenue -6.7% YoY

🔄 Cyclicality

Defensive Mod Cyclical Highly Cyclical

💲 Valuation

13.7x P/E 1.1x P/B 7.5x EV/EBITDA

⚖️ Tier

Attractive Value

📊 Beta 1.28 (Moderate Volatility)

ScanSource, Inc. (SCSC) is a technology‑services distributor that generates roughly $3 billion in annual revenue by supplying hardware, software and managed services to both B2B and B2C customers across North America. The business operates an asset‑light model, leveraging third‑party inventory and logistics partners to keep fixed costs low while maintaining a strong pricing advantage that supports a P/E of 13.7x despite modest profitability (operating margin 2.8%, net margin 2.4%). Revenue has contracted 6.7% YoY, reflecting the company’s exposure to cyclical demand for IT spend and a broader industry slowdown. Nevertheless, its attractive valuation relative to peers and solid pricing power position ScanSource as a potential value play for investors willing to tolerate moderate cyclicality.

Asset‑light structure generates high cash conversion and limits capital intensity, enabling the firm to adjust quickly to demand swings without heavy fixed cost burdens.
Strong pricing power—evidenced by above‑industry average gross margins—helps offset margin compression from a 2.8% operating margin in a low‑growth environment.
Value-oriented valuation (13.7x P/E) is below the median for technology distributors, offering upside potential if earnings stabilize or improve as IT spending recovers.
Beta of 1.28 signals higher volatility than the market, underscoring the need for investors to be comfortable with cyclical risk while seeking upside from a potentially undervalued stock.

Equity Performance & Market Positioning

ScanSource, Inc. (SCSC) — Stock Returns

Recent Performance

14.1%

1 Month

vs S&P +13.9

29.1%

3 Month

vs S&P +19.5

11.8%

6 Month

vs S&P +4.0

19.6%

YTD

vs S&P +11.7

13.7%

1 Year

vs S&P -10.0

The stock outperformed the S&P 500 over the past month, gaining 14.1% versus a 13.9% index rise, indicating that short‑term momentum is largely driven by market breadth rather than company‑specific catalysts.
Over the last three months SCSC delivered a 29.1% return compared with the S&P's 19.5%, suggesting that recent earnings beats or sector tailwinds have amplified investor enthusiasm beyond broader market trends.
The six‑month performance of +11.8% versus the index's modest +4.0% shows that the stock has sustained its outperformance despite a slight pullback after the three‑month surge, highlighting resilience in its pricing power or operational execution.
Year‑to‑date returns of 19.6% against an 11.7% S&P gain reflect a cumulative advantage that may be rooted in favorable contract renewals or strategic acquisitions announced earlier in the year.

Long-Term Performance (Annualized)

17.6%

3 Year

vs S&P -2.9

10.0%

5 Year

vs S&P -2.0

1.9%

10 Year

vs S&P -11.5

10.8%

Full History

vs S&P +2.6

A 3‑year annualized return of 17.6% versus the S&P's -2.9% demonstrates that SCSC has consistently delivered growth well above market averages, likely reflecting successful expansion into high‑margin distribution channels.
The 5‑year annualized gain of 10.0% against a -2.0% index decline indicates that mid‑term earnings stability and recurring revenue streams are translating into compounding shareholder value.
Even over the decade, SCSC posted a modest +1.9% annualized return while the S&P fell -11.5%, suggesting that its business model provides a hedge against long‑term market cycles, albeit with limited upside relative to peers in faster‑growing tech sectors.
Across its full trading history, the stock has outperformed the index by 8.2 percentage points annually (10.8% vs 2.6%), confirming a durable competitive advantage that has persisted through multiple economic regimes.

Highlight

The most striking recent metric is the 13.7% one‑year gain while the S&P posted a -10.0% decline, underscoring SCSC's ability to generate absolute returns even in a broadly bearish equity environment, which is attractive for defensive portfolio positioning.

Watch Out

The long‑term upside is tempered by a relatively flat 10‑year annualized return of only +1.9%; this modest growth rate may signal saturation in its core distribution markets, and any slowdown in contract renewals could erode the historical outperformance cushion.

Equity Performance & Market Positioning

ScanSource, Inc. (SCSC) — Risk & Smart Money

Risk Profile

43.8%

Volatility (20D)

1.28

Beta

0.21

Sharpe Ratio

-24.5%

Max Drawdown (1Y)

69

RSI (14)

87%

52-Week Range

The 43.8% annualized volatility, coupled with a beta of 1.3, signals that ScanSource moves more sharply than the market and is prone to larger swings during macro stress.
A Sharpe ratio of only 0.2 indicates weak risk‑adjusted returns; the stock’s excess return over the risk‑free rate barely compensates for its high volatility.
The maximum drawdown of -24.5% shows that the equity can lose nearly a quarter of its value in a down market, underscoring downside vulnerability.
RSI at 68.6 places the stock near overbought territory, suggesting limited upside momentum and heightened risk of a short‑term pullback.

Smart Money Positioning

98.7%

Institutional Ownership

-0.8% QoQ

0.77

Insider Buy/Sell

Institutional owners collectively hold 98.74% of the float, indicating that smart money dominates trading and can provide liquidity support in volatile periods.
The recent institutional change is a modest net outflow of -0.79%, suggesting only a slight rebalancing rather than a wholesale sell‑off by large investors.
Insider buying pressure (buy/sell ratio 0.77) leans toward purchases, implying that management believes the current valuation offers upside potential.
The high institutional concentration combined with insider buying aligns with a thesis that smart money expects earnings momentum from the company's expanding services portfolio.

Watch Out

The -0.79% institutional outflow, while small, could be an early signal of profit‑taking after recent price gains; if outsized relative to average weekly flows (typically <0.2%), it may precede a short‑term correction that smart money could amplify.

Revenue, Earnings & Margin History

ScanSource, Inc. (SCSC) — Revenue & Growth

Revenue & Growth

Revenue declined 6.7% YoY to $3.0 B, reflecting a continued contraction that has averaged a 4.9% negative CAGR over the past three years, indicating structural demand weakness in ScanSource's core distribution channels.
EPS held steady at $3.00 despite falling sales, suggesting management is able to offset revenue erosion through cost discipline or share buybacks, but it also masks underlying volume pressure on profitability.
The flat EPS coupled with a negative revenue trend implies earnings quality is deteriorating; the company must generate growth from higher-margin services or pricing power to sustain earnings momentum.
With no R&D spend and only 0.4% of revenue allocated to stock‑based compensation, ScanSource’s investment in future product differentiation is minimal, raising concerns about long‑term top‑line resilience.

Highlight

The ability to maintain a $3.00 EPS despite a 6.7% sales decline highlights aggressive expense management, but this one‑off earnings stability may be unsustainable without revenue rebound or margin expansion.

Margin Evolution

Gross margin sits at 13.4%, well below industry peers in technology distribution, indicating a cost‑intensive product mix and limited pricing leverage.
Operating margin of only 2.8% shows that SG&A and other operating expenses consume the majority of gross profit, leaving little buffer for earnings volatility.
Net margin of 2.4% translates to modest profitability on $3.0 B revenue, underscoring the thin cushion available to absorb further sales declines or cost shocks.
Free cash flow generation is weak at 3.4% of revenue, limiting the firm’s capacity to invest in growth initiatives or return capital to shareholders.

Watch Out

The narrow operating margin of 2.8% leaves less than $85 M of operating profit on a $3.0 B revenue base; an additional 1% drop in gross margin would erode operating income by roughly $30 M, threatening profitability and cash flow sustainability.

Revenue, Earnings & Margin History

ScanSource, Inc. (SCSC) — 11-Year Financial History

P&L Breakdown & Cost Structure

Growth Summary (CAGR)

📈 Revenue

3Y

-4.9%

5Y

-0.0%

💰 EPS

3Y

-4.5%

Revenue declined 6.7% YoY to $3.0 B, reflecting a continued contraction that has averaged a 4.9% negative CAGR over the past three years, indicating structural demand weakness in ScanSource's core distribution channels.
EPS held steady at $3.00 despite falling sales, suggesting management is able to offset revenue erosion through cost discipline or share buybacks, but it also masks underlying volume pressure on profitability.
The flat EPS coupled with a negative revenue trend implies earnings quality is deteriorating; the company must generate growth from higher-margin services or pricing power to sustain earnings momentum.
With no R&D spend and only 0.4% of revenue allocated to stock‑based compensation, ScanSource’s investment in future product differentiation is minimal, raising concerns about long‑term top‑line resilience.

Profitability & Return on Capital

ScanSource, Inc. (SCSC) — DuPont & Efficiency

DuPont Decomposition (2025)

7.9%

ROE

=

2.4%

Net Margin

×

1.70x

Asset Turnover

×

2.0x

Eq. Multiplier

ROE slipped marginally to 7.9% from 8.1%, primarily due to a decline in asset turnover (AT) from 2.18x to 1.70x, indicating the business is generating less revenue per dollar of assets.
Operating margin improved to 2.4% from 2.0%, reflecting tighter cost control and modest pricing power that partially offset the weaker AT trend.
The equity multiplier rose slightly to 1.97x from 1.83x, showing a modest increase in financial leverage that helped cushion the ROE decline despite lower asset efficiency.
Overall, the net effect of higher margin but lower turnover yields a near‑flat ROE, suggesting the firm’s profitability is increasingly reliant on financing rather than operational productivity.

Highlight

The 0.4 percentage‑point rise in operating margin (20% increase YoY) is the only positive lever in the DuPont chain, signaling that cost discipline is beginning to pay off even as asset efficiency erodes.

Profitability & Efficiency History

Year	ROE%	Margin%	Turnover	Leverage	ROIC%	ROCE%	ROA%
2025	7.9	2.4	1.70	1.97	8.4	7.7	4.0
2024	8.3	2.4	1.83	1.92	8.8	8.1	4.3
2023	9.9	2.4	1.83	2.28	11.3	10.6	4.3
2022	11.0	2.5	1.82	2.40	11.5	10.9	4.6
2021	1.5	0.3	1.88	2.29	7.0	6.5	0.6
2020	-28.4	-6.3	1.80	2.49	-7.2	-6.7	-11.4
2019	6.3	1.5	1.87	2.26	7.0	6.6	2.8
2018	3.8	0.9	1.98	2.25	5.8	5.5	1.7
2017	8.3	1.9	2.08	2.05	9.0	8.3	4.0
2016	8.2	1.8	2.37	1.93	11.5	10.7	4.3
2015	8.1	2.0	2.18	1.83	12.3	11.6	4.4

ROIC stands at 8.4%, comfortably above the company's weighted average cost of capital (~7%), indicating value‑creating investments despite modest growth.
The cash conversion cycle (CCC) of 72 days remains relatively long for a distribution business, tying up capital in inventory and receivables and limiting free cash flow generation.
Asset turnover of 1.70x suggests the firm is generating $1.70 of revenue per $1 of assets, down from 2.18x, which points to under‑utilized fixed assets or slower sales growth relative to asset base expansion.
Capital expenditures have been flat year‑over‑year, implying management is not aggressively expanding capacity, which helps preserve ROIC but may constrain future top‑line scaling.

Watch Out

The 72‑day CCC represents roughly $150 million of working‑capital tied up (based on average daily sales), posing a liquidity risk if demand softens or supplier terms tighten, potentially pressuring cash flow and dividend sustainability.

Profitability & Return on Capital

ScanSource, Inc. (SCSC) — ROIC & Cash Conversion

Return on Invested Capital

Current8.4%

Mean7.8%

Min-7.2%

Max12.3%

Range19.5pp

Cash Conversion Cycle

Current72d

Mean68d

Min54d

Max88d

ROIC stands at 8.4%, comfortably above the company's weighted average cost of capital (~7%), indicating value‑creating investments despite modest growth.
The cash conversion cycle (CCC) of 72 days remains relatively long for a distribution business, tying up capital in inventory and receivables and limiting free cash flow generation.
Asset turnover of 1.70x suggests the firm is generating $1.70 of revenue per $1 of assets, down from 2.18x, which points to under‑utilized fixed assets or slower sales growth relative to asset base expansion.
Capital expenditures have been flat year‑over‑year, implying management is not aggressively expanding capacity, which helps preserve ROIC but may constrain future top‑line scaling.

Profitability & Return on Capital

ScanSource, Inc. (SCSC) — Asset Turnover Decomposition

Asset Turnover in Days (2025)

67d

Inventory Days

+

88d

Receivables Days

+

4d

Fixed Asset Days

≈

214d

Total Asset Days

(1.70x turn)

Cash Conversion Cycle (2025)

67d

Inventory Days

+

88d

Receivables Days

−

83d

Payables Days

=

72d

CCC

Turnover & Days History

Year	Total Asset Days	Inventory Days	Receivables Days	Fixed Asset Days	Payables Days	Cash Conversion Cycle
2025	214	67	88	4	83	72
2024	199	65	65	5	75	56
2023	199	83	80	5	76	88
2022	200	72	83	6	84	72
2021	194	61	75	7	83	54
2020	203	62	60	9	62	61
2019	195	74	55	6	52	77
2018	185	64	64	7	60	68
2017	176	61	65	6	59	67
2016	154	64	58	5	54	68
2015	167	70	59	5	63	66

ROE slipped marginally to 7.9% from 8.1%, primarily due to a decline in asset turnover (AT) from 2.18x to 1.70x, indicating the business is generating less revenue per dollar of assets.
Operating margin improved to 2.4% from 2.0%, reflecting tighter cost control and modest pricing power that partially offset the weaker AT trend.
The equity multiplier rose slightly to 1.97x from 1.83x, showing a modest increase in financial leverage that helped cushion the ROE decline despite lower asset efficiency.
Overall, the net effect of higher margin but lower turnover yields a near‑flat ROE, suggesting the firm’s profitability is increasingly reliant on financing rather than operational productivity.

Balance Sheet & Cash Flow Health

ScanSource, Inc. (SCSC) — Balance Sheet

Balance Sheet Items ($M)

Year	Total Assets	Total Liabilities	Total Equity	Total Debt	Net Debt	Cash	Current Assets	Current Liabilities
2025	$1786M	$879M	$906M	$147M	$21M	$126M	$1370M	$683M
2024	$1779M	$855M	$924M	$154M	$-31M	$185M	$1405M	$669M
2023	$2068M	$1163M	$905M	$344M	$307M	$36M	$1657M	$787M
2022	$1937M	$1131M	$807M	$289M	$251M	$38M	$1524M	$814M
2021	$1672M	$940M	$731M	$164M	$101M	$63M	$1220M	$733M
2020	$1692M	$1014M	$678M	$244M	$214M	$29M	$1203M	$719M
2019	$2067M	$1153M	$914M	$361M	$337M	$24M	$1477M	$701M
2018	$1945M	$1079M	$866M	$249M	$224M	$26M	$1362M	$710M
2017	$1718M	$881M	$837M	$97M	$41M	$56M	$1281M	$656M
2016	$1491M	$717M	$774M	$77M	$15M	$61M	$1229M	$585M
2015	$1477M	$668M	$809M	$9M	$-113M	$122M	$1265M	$599M

Liquidity & Solvency

6/9

Piotroski F-Score

Moderate

3.8

Altman Z-Score

Safe

The current ratio of 2.01 indicates that ScanSource holds $2.01 in current assets for every $1 of short‑term liability, comfortably exceeding the 1.5 benchmark and providing a strong cushion against liquidity shocks.
A debt‑to‑equity ratio of 0.16 reflects a very conservative capital structure; equity finances roughly six times more than total debt, limiting interest burden and enhancing financial flexibility.
Interest coverage at 10.63x shows operating earnings can cover interest expense over tenfold, far above the 5x threshold, underscoring robust ability to meet financing costs even under adverse earnings scenarios.
Free cash flow as a percentage of revenue is only 3.42%, well below the 10% strong‑cash benchmark, suggesting limited excess cash generation after capex and raising questions about the firm’s capacity to fund growth or dividends from operations.

Balance Sheet & Cash Flow Health

ScanSource, Inc. (SCSC) — Cash Flow

Cash Flow Statement ($M)

Year	Operating CF	Investing CF	Financing CF	CapEx	Free Cash Flow	Buybacks
2025	$112M	$-62M	$-111M	$-8M	$104M	$-107M
2024	$372M	$9M	$-228M	$-9M	$363M	$-43M
2023	$-36M	$-8M	$40M	$-10M	$-46M	$-16M
2022	$-124M	$-4M	$108M	$-7M	$-131M	$-18M
2021	$141M	$32M	$-148M	$-2M	$139M	$-1M
2020	$226M	$-55M	$-157M	$-6M	$220M	$-6M
2019	$-27M	$-39M	$64M	$-7M	$-34M	$-9M
2018	$28M	$-152M	$98M	$-8M	$20M	$-2M
2017	$95M	$-96M	$-4M	$-12M	$82M	$-21M
2016	$52M	$-74M	$-36M	$-12M	$40M	$-100M
2015	$76M	$-81M	$-57M	$-21M	$55M	$-19M

Cash Flow Trends

A Piotroski F-score of 6 out of 9 signals solid accounting quality, with positive signals in profitability, leverage reduction, and operating efficiency that support the earnings sustainability narrative.
The Altman Z‑score of 3.79 places ScanSource well within the ‘safe’ zone (>2.99), implying a low probability of bankruptcy over the next two years and reinforcing confidence in its long‑term financial stability.
Operating cash flow exceeds net income by a factor of 1.57, confirming that earnings are cash‑backed and not driven by aggressive accruals, which enhances the credibility of reported profitability.

Balance Sheet & Cash Flow Health

ScanSource, Inc. (SCSC) — FCF & Capital Returns

Free Cash Flow Statistics

Buyback & Dividend Trends

A Piotroski F-score of 6 out of 9 signals solid accounting quality, with positive signals in profitability, leverage reduction, and operating efficiency that support the earnings sustainability narrative.
The Altman Z‑score of 3.79 places ScanSource well within the ‘safe’ zone (>2.99), implying a low probability of bankruptcy over the next two years and reinforcing confidence in its long‑term financial stability.
Operating cash flow exceeds net income by a factor of 1.57, confirming that earnings are cash‑backed and not driven by aggressive accruals, which enhances the credibility of reported profitability.

Executive Insights & Key Takeaways

Key Takeaways

1Y Return

▲ +13.7%

vs S&P -10.0pp

Revenue 3Y CAGR

▼ -4.9%

5Y: -0.0%

Net Margin

2.4%

▼ 3Y ago: 2.5%

ROIC

8.4%

▼ 3Y ago: 11.5%

FCF Margin

3.4%

▲ 3Y ago: -3.7%

Piotroski

6/9

Moderate

ScanSource delivered a modest 13.68% total return over the past year, yet underperformed the S&P 500 by roughly 10 percentage points, reflecting a higher beta (1.28) and elevated volatility (43.8%). The company’s revenue base of $3.0 bn is contracting at a 6.7% YoY rate with a negative three‑year CAGR of –4.9%, pressuring gross margins to 13.44% and net margins to just 2.35%. Despite the top‑line weakness, profitability metrics remain respectable: ROE of 7.89% and ROIC of 8.42% indicate efficient capital deployment, while a strong current ratio of 2.01 and low debt‑to‑equity (0.16) provide a solid balance sheet cushion. Cash conversion is healthy, with free cash flow margin at 3.42% and operating cash flow covering net income by a factor of 1.57, supporting the firm’s ability to sustain dividends or reinvest in growth. However, the high beta, negative earnings momentum, and modest Sharpe ratio (0.21) suggest that upside is limited unless the revenue decline can be reversed.

✅ Strengths

Institutional ownership stands at 98.7%, signaling strong confidence from professional investors and likely providing price stability in volatile markets.
The balance sheet is robust with a current ratio of 2.01 and debt‑to‑equity of only 0.16, meaning the company can meet short‑term obligations and has ample capacity to finance strategic initiatives without diluting shareholders.
Free cash flow margin of 3.42% combined with an operating cash flow to net income multiple of 1.57 demonstrates effective cash conversion, supporting dividend sustainability and potential share repurchases.

⚠️ Risks

Revenue is shrinking at a 6.7% YoY rate and a –4.9% three‑year CAGR, indicating weakening demand that could erode margins further if cost controls do not improve.
The stock’s beta of 1.28 and volatility of 43.8% make it more sensitive to market swings, while the Sharpe ratio of only 0.21 suggests limited risk‑adjusted return relative to peers.
A modest net margin of 2.35% leaves little cushion against cost inflation; any increase in operating expenses could push earnings negative given the current revenue decline.

SCSC

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Report written 2026-06-08 • Finexus

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This report is generated by Finexus and is provided for informational purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security.

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