Why Power Solutions International Inc. Stock Is Powering Higher

Power Solutions International Inc is fundamentally stronger following yesterday’s announcement.

Apr 4, 2014 at 3:46PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of alternative-fuel power systems maker Power Solutions International (NASDAQ:PSIX) hit the gas pedal as much as 5.8% earlier this week following the announcement that it has acquired Professional Power Products.

So what: Professional Power Products is described as "a leading designer and manufacturer of large, custom engineered integrated electrical power generation systems serving the global diesel and natural gas power generation market."

In 2013, Professional Power generated revenue of $40.3 million and $7.9 million in net income.

Now what: CEO Gary Winemaster stated, "We are delighted with the acquisition of PPPI and the tremendous opportunity it presents us." He describes how it's a "complementary product offering," and that the company's "extensive customer relationships ... should expand our customer reach and position us very well for growth in the years ahead."

That reads as though Power Solutions expects to potentially sell its current products to this acquisition's current customers, and possibly vice-versa. Any time you see the phrase "complementary product offering" it generally means the two products could be sold to each other's customers.

The best part appears to be the purchase price. Power Solutions paid $46 million in cash and will also issue between $5 million and $15 million worth of stock; using the midpoint of $10 million results in a total purchase price of $56 million.

To show how Power Solutions looks to have gotten a bargain for Professional Power Products we can look at relative valuation. At $7.9 million in net income in 2013, the purchase price is only seven times the net income (the same as a P/E of seven). Based on last year's earnings for Power Solutions, it trades with historical P/E of 86 based on the current share price and EPS of $0.92 for 2013. Had this acquisition been made a year ago, it would have added over $0.70 per share to the EPS and potentially would have commanded a much higher stock price. 

On an adjusted basis, the company expects the acquisition to be accretive in 2014, which should mean higher earnings per share immediately this year. Power Solutions International is financing the cash portion of the purchase price, so expect to see the earnings that this acquisition brings to be far higher than the financing or interest expenses. It will be more interesting to see how much new business this acquisition brings on top of what seems like a reasonably cheap purchase price.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers