Gagnon Securities Exits PSIX Amid Margin Concerns and Stock Surge

What happened

Power Solutions International's stock has risen approximately 140% over the past year, driven by data-center-linked demand, but a significant institutional investor is now exiting. Gagnon Securities sold its entire position of 64,770 shares in Q4 2025, decreasing its stake value by $6.36 million. This follows earlier insider selling in late 2025, as detailed in the DeepValue report, which noted clustered sales by executives and a 10% owner during a period of high volatility. Despite reporting a 62% sales surge and record revenues, PSIX faces severe margin compression, with gross margin falling to 23.9% in Q3 2025 from 28.9% a year earlier due to ramp inefficiencies and lower-margin mix. The exit highlights growing doubts about the company's ability to translate robust growth into sustainable profitability amid elevated valuations.

Implication

The sale by Gagnon Securities indicates waning institutional confidence, which could lead to further selling pressure and stock volatility if margin concerns are not addressed in upcoming quarters. It aligns with earlier insider selling patterns, suggesting that those with internal knowledge may be capitalizing on the stock surge despite underlying profitability issues, casting doubt on management's narrative of temporary inefficiencies. For current shareholders, this news underscores the fragility of PSIX's valuation, which at 24.14x EV/EBITDA offers no margin of safety and is vulnerable to any operational setbacks. The investment thesis remains centered on waiting for gross margin stabilization above 24% and Power Systems sales dominance, but the exit adds urgency to monitor quarterly reports for signs of efficiency gains. New investors should avoid entry until visible progress on margins is demonstrated, as the stock's recent gains are predicated on growth that may not translate into durable cash generation.

Thesis delta

The core thesis to wait for margin stabilization remains unchanged, but Gagnon's exit intensifies the caution by signaling institutional skepticism even amid strong sales growth. It reinforces the report's emphasis that margin recovery is a critical near-term catalyst, and the risk of further selling by large holders has increased, though no fundamental shift in the business model is implied. Investors should treat this as a validation of existing concerns rather than a new negative, maintaining a WAIT rating until operational metrics improve.