A few years ago I read a great book: How I made $2,000,000 in the stock market. The book was originally published in 1960 and it still holds true today. Here is the link to the book on Amazon. One of the concepts he speaks about in the book is looking for stocks that “step up” on high volume. This chart would be a perfect example.
click to enlarge
When Power One showed up on my screen of new 52 week highs I had to dig deeper. Who are they? What do they do? Why is this stock moving so nicely.
Power One make something called an inverter. An inverter is used to convert energy. When you install a solar panel on your roof or a wind turbine for wind generated energy, you need an inverter to take that energy and connect it to your house. Besides, inverters they make all different types of power conversion and power management products.
A great deal of their business is dependent on the solar and wind energy markets because they are “the device in the middle”, however, they are not competitors with the solar panel makers. They connect to the wind turbine and solar panel.
Looking back for the past 5 years, Power One just became profitable last quarter. In the second quarter they earned $0.17 a share on revenue of $214.5 million and they expect 3rd quarter to have revenue of $250 – $270 million. Only 6 analyst cover this stock and they are now estimating next years earnings to be $1.04, which gives this stock a future P/E of 12.40. Since we are going from negative earnings to positive earnings we can not really calculate earnings growth, but we can calculate revenue growth.
Looking at the options for this company, they are pretty reasonably priced. Power One will not announce 3rd quarter earnings until around November 1st. In the meantime, the stock will probably float around in the $12 – $13 range just like it stayed range bound in the $7 – $8 range from May – July.
The most expensive options will be November's, which get listed after August option expiration. In the meantime, I would look to buy the stock in the current $12 – $13 range and then when the November options are listed I will look at buying an out of the money vertical call spread or maybe take a gamble on the $15 calls straight.
Disclosure: No positions