3 Reasons to Sell Power-One

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.

Competition
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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