Buy, Sell, or Hold: Power-One

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether its possible upside outweighs its risks. Let's take a look at Power-One (Nasdaq: PWER  ) today, and see why you might want to buy, sell, or hold it.

Founded in 1973 and based in California, Power-One has a market capitalization near $600 million. It specializes in power supply products for a range of industries, including renewable-energy (RE) inverters that convert solar or wind energy into forms usable in power grids. Over the past year, the stock is down 9%. Over the past five years, it has averaged an annual loss of 4%.

A key reason to be interested in Power-One is if you believe that our planet's future includes growing use of solar and wind power. That's not necessarily enough, though, as many such companies have not rewarded investors in recent years. You have to settle on the companies that will be winners and to invest in them over the right time frame. First Solar (Nasdaq: FSLR  ) , for example, is down 63% over the past year, and has averaged a 30% annual loss over the past five.

Fellow solar specialist GT Advanced Technologies (Nasdaq: GTAT  ) is down 38% over the past year, and has averaged a 6% loss over the past three. First Solar has been hurt by a supply glut of solar panels, and has also suffered from product reliability issues. GT Advanced Technologies is viewed as stronger, though some question why it's taking on more debt when it has plenty of cash.

But back to the solar energy industry. There's a lot to be hopeful about regarding solar power. My colleague Travis Hoium has offered some "solar stats that will blow your mind," such as strong growth of solar power in the U.S., sharply dropping prices for it, and major companies investing heavily in it for their own power needs. He has also drawn similarities between the solar and wind industries, pointing out how, whereas the U.S. was an early mover, China has become a major player, and competition has intensified.

The company's financials offer more reason to be hopeful. Until the past year or so, revenue was growing at double-digit rates. Meanwhile, earnings turned positive in the past few years, but they've been inching downward a bit. (Again, these have been tough years for the industry.) The company's cash pile has been steadily growing, and it has paid off its long-term debt, leaving its balance sheet very attractive.

It has solid prospects, too, leading in the inverter market, expecting a boost in demand from China and emerging markets, and seeing overall growth in demand as solar energy becomes more affordable in many regions.

Those same financials offer some reasons to steer clear of Power-One, too: Revenue has been roughly flat in recent years, and earnings have been trending downward. Free cash flow is solid over the past year, but it has alternated between positive and negative in recent years. The latest earnings report was positive, though, and Power-One raised its projections.

Another concern is the company's share count, which has been creeping upward in recent years, from 88 million at the end of 2009 to 146 million in its last quarter. Rising share counts can dilute the value of existing shares and hurt shareholders, so it's worth keeping an eye on this.

Then there's the danger of commoditization. As solar products become commodities and competition heats up, profit margins are likely to fall. (This can sometimes be countered if a company is able to brand itself, as Intel  (Nasdaq: INTC  ) did with its "Intel Inside" campaign.)

Hold (off)
Given the reasons to buy or sell Power-One, it's not unreasonable to decide to just hold off. You might want to wait for it to post a string of profitable quarters, and for the alternative-energy business to pick up more.

You might also look at other players in the alternative-energy world. Small ones that turn into long-term winners may pay off the most, but they carry more risk. Thus, some big and diversified companies are worth considering, such as General Electric (NYSE: GE  ) , which has recently installed 300 wind turbines in Braziland announced partnerships with energy concerns in Turkey and Mexico. In solar power, though, GE is holding off on some projects, due to the not-so-profitable environment. Another area where GE is getting busy is in batteries, as energy storage is a promising field.

Siemens (NYSE: SI  ) is another behemoth expanding into batteries. Both have many billions they can spend investing in new projects and technologies or buying other companies outright.

The verdict
I'm going to pass on Power-One at the moment. Everyone's investment calculations are different, though, so do your own digging, and see what you think. Remember that there are plenty of other compelling stocks out there.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitterowns shares of Intel. The Motley Fool owns shares of General Electric Company, Intel, and Power-One. Motley Fool newsletter services recommend First Solar and Intel. 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. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | 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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2055877, ~/Articles/ArticleHandler.aspx, 5/31/2016 12:23:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 days ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/27/2016 4:00 PM
FSLR $49.90 Up +0.17 +0.34%
First Solar CAPS Rating: ***
GE $30.12 Up +0.10 +0.33%
General Electric C… CAPS Rating: ****
GTATQ $0.00 Down +0.00 +0.00%
GT Advanced Techno… CAPS Rating: ***
INTC $31.57 Up +0.08 +0.25%
Intel CAPS Rating: ****
PWER.DL.DL $0.00 Down +0.00 +0.00%
Power-One, Inc. CAPS Rating: ****
SIEGY $109.83 Up +0.38 +0.35%
Siemens AG (ADR) CAPS Rating: ****