3 Reasons to Sell Power-One

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Last Friday, I covered three reasons to buy Power-One (Nasdaq: PWER  ) , a leading manufacturer of inverters for the renewable energy market. But like any story, there are two sides to the coin, and investors need to consider both.

Below I have highlighted three reasons I think investors should sell Power-One, followed by my final call on the stock.

Financials are getting worse
The simple fact is, financial conditions are getting worse at the moment. In the first quarter, sales in the renewable energy division were down 1.9%, power sales were down 17.1%, and gross profit fell 34.7%. All of this led the company to report a thin profit of $5.0 million, which was one-sixth that of the quarter before.

This follows the pattern solar manufacturers went through, which has to make investors think twice about owning the stock.

Like solar, the inverter business is experiencing a lot of competition at the moment. Enphase (Nasdaq: ENPH  ) popped out of nowhere to become a big player in the market, and companies from American Superconductor (Nasdaq: AMSC  ) to General Electric are trying to take a piece.

But what should really worry investors is that Chinese manufacturers are entering the market. In the solar module market, firms came out of nowhere and Chint may be a company worth watching to do the same with inverters. Now that China dominates the solar module market, I wouldn't be surprised to see them moving to other parts of the value chain.

Solar manufacturers stealing the thunder
One of the advancements in solar modules in the past year is the inclusion of the inverter in the module itself. For residential and other small-scale projects this makes a ton of sense to keep costs down, but it does have an impact on inverter suppliers.

Canadian Solar (Nasdaq: CSIQ  ) and others are now making DC modules to differentiate their product. Inverter manufacturers will likely supply this product to many manufacturers, but this at least changes the dynamic for Power-One, adding risk to the company's growth.

Foolish bottom line
Three pros and three cons down; now it's time to decide if I think the stock will outperform or underperform. There is a lot of risk of competition and general solar market swings, but given the company's strong balance sheet I think Power-One will end up a survivor in the inverter market. I'm going to give the stock a green thumb (outperform) rating on my CAPS portfolio under our CAPScall initiative. Follow the rest of my picks here.

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Fool contributor Travis Hoium owns call options on American Superconductor. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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

Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

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 July 26, 2012, at 6:23 PM, hofmanjim wrote:

    It is amazing how often you are wrong. PWER just took off. KNDI is at a 52 week High and your buy years ago on CYTR is a JOKE.

  • Report this Comment On July 26, 2012, at 6:24 PM, hofmanjim wrote:

    Motley Fool, manipulates the truth to make their money on your dime.

  • Report this Comment On July 27, 2012, at 1:24 PM, feryl wrote:

    Perhaps you should read before commenting. It's rated outperform, which I'd say it just did.

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