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Power-One Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Power-One (Nasdaq: PWER  ) beat earnings estimates last night, sending the shares sharply up this morning, then down just as sharply minutes later -- forming a spike sharp enough to give any vampire in your neighborhood a powerful case of heartburn this Halloween weekend.

So what: With Q3 revenues of $314 million, and earnings of $0.40 per share, Power-One easily beat consensus estimates. Even better for the bulls, management forecast fourth-quarter sales to be as much as 21% ahead of estimates on strong demand for solar inverters, with profit margins moving higher.

Now what: I hesitate to call this a "buying opportunity" for one reason only: the obvious "knee-jerk" reaction of the initial stock price jump. Power-One didn't even put out a press release to announce earnings (only filing them with the Securities and Exchange Commission), so it's clear most investors hopped a momentum train before even reading the report.

That said, I have read the report, and here's what it says: Revenues more than tripled, while cost of goods sold rose "only" 140%, and operating costs a bare 28%. Operating margin looks to be about 25.1% so far this year, which beats power equipment peers Emerson Electric (NYSE: EMR  ) and American Superconductor (Nasdaq: AMSC  ) -- and is way better than unprofitable Satcon Tech (Nasdaq: SATC  ) . Inventories are up just 62%, so I see no channel stuffing going on here.

With newfound profits that give it a low P/E of 11, everything here looks good to me.

Want to more information on Power-One? Add it to your watchlist by clicking here.

Emerson Electric is a Motley Fool Income Investor selection, but Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 29, 2010, at 1:20 PM, chammond55 wrote:

    The immediate pop was short-covering, as ~36% of the float was short...not just 'pure' momentum. The subsequent price slide should certainly be seen as a good entry point...

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Rich Smith
TMFDitty

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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