Not A PWER Expert Yet, But Getting In Deeper

I'm still learning about alternative energy conversion as I lose money on my initial Power-One purchases. So far I've convinced myself that I will still do well with the investment. But, it's starting to feel lonely as there are plenty of sellers and naysayers.

The three questions I constantly ask myself are: is solar/wind energy going away, is PWER a leader/survivor, and am I over-paying for the company? My recurring answers are No, Yes, No.

Economical or not, every country in the world is gravitating, to some degree, to alternative power generation. Subsidized yes, but becoming less so as oil prices increase. No one likes being hostage to oil producer states.

Alternative energy when produced needs to be converted into grid power and that's where PWER, and a slew of competitors, comes in. They also do about a $300MM business in power management for data centers and have about $200MM in cash, but evidently the market doesn't care! Power-One does about $700MM in inverter revenue and is the world's second largest inverter seller. New factories in Arizona and China are spearheading expansion into those two large markets for renewable projects. With a number two industry position, new factories, plenty of cash, and virtually no debt, I don't think PWER is facing failure. They could get acquired though by an Emerson or GE if they wanted to get serious about the market.

At a $7 share price, I can live with a poor first half of 2011 as plants are started up and inventory gluts are worked out. The company and analysts are still very upbeat about the full year performance, but if wrong, it's been priced into the share price. If margins fall dramatically and SGA gets out of control, causing net income to fall to $.50 a share, that 's only a P/E of 14 for a leading growth company.

Today I upped my ante and bought some January 2012 $5 calls. I paid about $2.85 for the options so I'll start, hopefully, breaking even at about $7.85. PWER finished the day at about $7.25. I liked the company in the $8s range, so I was happy to add to my position at an even lower price. PWER has 10 months to prove the naysayers incorrect and Crusty wise. In the meantime I continue to learn more about the industry.