Power-One Rides Into a Perfect Storm

Power-One (Nasdaq: PWER  ) is sort-of new to the solar power industry. I think it shows.

The company raised sales expectations sky-high three months ago after experiencing a tremendous growth quarter, sending the stock on a magic carpet ride over the past three months. Last night's earnings report just about erased all those gains overnight because Power-One clearly overestimated its own strength.

That's not to say that the quarter was entirely without merit. Sales jumped 157% year-over-year to $366 million, slightly above the $360 million top end of management's already rosy guidance. So far, so good -- but that's where the gravy train stops.

The revenue outlooks for the coming quarter and fiscal 2011 fell far short of estimates. To explain the disappointing guidance, management pointed to bad weather slowing down solar-panel installations in Europe, excess inverter inventory in Power-One's distributor channels, and lower energy tariffs in multiple markets. Ouch.

Analysts have turned from a Greek "buy" chorus to calling the stock "dead money." The market is taking Power-One's weakness as mildly negative news for the solar industry, sending rivals First Solar (NYSE: FSLR  ) , JinkoSolar Holding (NYSE: JKS  ) , and Suntech Power Holdings (NYSE: STP  ) down by a couple of percent on a generally upbeat market day. But nobody is suffering like Power-One itself.

Fellow Fool Jim Mueller sees a "classic Messed-Up Expectation opportunity" in Power-One, and that was when the stock was riding high on that terrific third-quarter report. Do you see an outsized value in the company's healthy cash flows or an overvalued growth stock screaming "dead money?" Discuss in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. First Solar is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Power-One. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (5) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On February 04, 2011, at 8:33 PM, Kurtmoe1 wrote:

    Over 35 million shares traded hands today with the price opened at 9.17 and stayed real close to that all day. That is a lot of shares without much change. I for one hope it will recover. Does anybody think It will keep going down to the 8.40 mark or go up?????

  • Report this Comment On February 04, 2011, at 9:15 PM, vino21 wrote:

    Funny, not even a few month ago (in December) PowerOne was given some very positive reviews on this site. In hindsight it is always easy to say, look how bad this stock is . Yes, Power was flying high and came down with a bang but it will recover again.

  • Report this Comment On February 04, 2011, at 10:05 PM, corgiwolf wrote:

    I wouldn't have described market reaction to the Q3 report (Oct 28, after closing) as a magic carpet ride. PWER's share price plunged the next day and for 2 weeks after, to a low of 8.31 Nov 12.

    It was more like suddenly slipping down a hill, followed by a slow trudge up.

    And I think you do Power-One's management an injustice by calling their guidance "rosy." Since, as you say, they topped it, it's better characterized as "conservative." The rise of their top and bottom lines is what's rosy.

    Raising the question of "dead money" seems a surreal reaction to the announcement that a company's slow quarter will still be their third best ever, will be within 20-29% of the blow-out revenues just reported. Even the low end of revenue guidance puts it 71% above same quarter the previous year. If that's death, let all my investments be smited!

    I shouldn't speak up, if PWER makes another move down I'll take advantage of the buying opportunity as I did today, with pleasure. But the cognitive dissonance of reading what's being said makes my head ache.

  • Report this Comment On February 05, 2011, at 3:42 PM, vivium wrote:

    PWER was allready undervalued and today it's even more undervalued(look at the metrics...). Despite the huge volume it stayed nicely above 9$, so there's a lot of buying intrest. I would'nt be surprised that it'll go up to the 10$ region again and remember there's ane insane % of shorties. One day they'll have to cover and that day is sooner than these dumbo's are realising themselves.

  • Report this Comment On February 06, 2011, at 9:42 AM, ericandmisti wrote:

    We are not talking about some wildly overvalued stock. The stock is trading at under 13 times earnings and is still expected to make more in 2011 than 2010. If it were one of the stocks trading at 30 plus times earnings it would deserve to get creamed with anything less than a perfect projection for the future, but this is more of a value play. Even with the reduced guidance for the year the stock is still trading at an extremely attractive P/E. The CEO has also said the guidance for 2011 is also conservative. I am looking at this as a buying opportunity.

    Eric

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