Solid, Steady Performance Is the Secret to This Company's Success

This article is part of our Rising Star Portfolios series.

When electricity inverter maker Power-One (Nasdaq: PWER  ) reported earnings last night, I was pretty excited. After all, it's one of just a small handful of companies in my Messed-Up Expectations portfolio in which I have the most confidence in its ability to beat the market over the long term. Unfortunately, since I started buying it, that has hardly happened.

Power-One reported a profit for the seventh quarter in a row and an operating profit in both of its business units -- Power Solutions and Renewable Energy -- for the third quarter in a row. However, it missed Street expectations this quarter by a penny while managing to bring in more revenue than expected. Further, it guided to less-than-expected revenue for the third quarter but bracketed revenue expectations for the whole year with its own full-year guidance.

The best part of yesterday's earnings report, and one of the catalysts I see for very healthy investment returns in the future, is that non-European sales of inverters grew to 18% of the total.

Europe has, for several years, been the place for solar energy and, thus, inverter sales. (Inverters convert the DC current put out by solar panels into AC current that electric grids use.) With economic problems in Europe and concern about government subsidies (called "feed-in tariffs"), solar companies with strong ties to Europe have not done well year to date.

Company

Share-Price Change, YTD

Percentage Revenue From Europe, Last Fiscal Year

Percentage Revenue From Europe, Previous Fiscal Year

GT Solar (NYSE: SOLR  ) 50% 5.7% 17.6%
Yingli Green Energy (NYSE: YGE  ) (28.3%) 82.5% 89.5%
Power-One (32.5%) 72.1% 54.8%
ReneSola (NYSE: SOL  ) (32.5%) 35.3% 17.4%
LDK Solar (NYSE: LDK  ) (35.0%) 35.6% 20.4%

Source: Yahoo! Finance and Capital IQ, a division of Standard & Poor's. YTD = year to date.

Now, however, Power-One's growth in North America and Asia -- specifically India and China -- is overcoming the weakness in Europe, and this trend should continue. And with the company picking up market share -- now 15% over those markets -- it only stands to benefit from continued growth. Any resurgence in Europe should be icing on the cake.

In summary, I felt the second quarter was a solid transition quarter as Power-One executes its plan to become less reliant upon European solar sales. Therefore, I have no plans to reduce the company's position size in the MUE port. Neither am I planning to increase the size, as it is already at the maximum I'm allowing any single company to reach.

After adding Power-One to My Watchlist, come and discuss the company and the solar industry at the MUE discussion board.

The Motley Fool owns shares of Power-One. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool analyst Jim Mueller owns shares of Western Refining. He works for the Stock Advisor newsletter service. The Motley Fool's disclosure policy is never messed up.


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