Solar Losers: 5 Keys to the Power-One Selloff

NEW YORK (TheStreet) -- If there were ever a case of a solar stock being a big winner and loser on the same day, it might be solar inverter company Power-One(PWER), which blew by Street estimates in its after-hours earnings report on Thursday, and is down between 3% and 6% in Friday trading.

It didn't look like it was going to be a losing day for Power-One based on the initial reaction to its third quarter earnings. Anxious investors had their finger on the buy button when Power-One reported after the close on Thursday, awaiting the end of the trading halt in Power-One shares. And why wouldn't an investor be waiting to buy into the earnings rally? The Street had more or less said it would take a blowout quarter for Power-One to continue its earnings momentum, and Power-One delivered what amounts to a blowout: earnings of 40 cents per share versus Street consensus of 23 cents, and revenue of $314 million versus Street consensus revenue of $264 million.

Power-One had guided investors to revenue between $250 million and $270 million when it last reported.

Power-One shares rocketed by 16% in the after-hours session on Thursday and opened with a similar gain on Friday morning, yet by mid-day Power-One shares were down by between 5% and 6%. If the reversal from a near 20% rise to a 6% dip seems hard to understand, it really shouldn't be. Here are five factors that all play into the reversal of fortune in Power-One shares, and in the end, don't rule out the bull case for the company.

Number One: Volatile trading has always been the case for Power-One. The loss of 6% was down to as little as 2% by 2 p.m. and back to 5% by 3 p.m., and of course, all of that was preceded by the open 16% up on Friday morning.

Number Two: Short covering had to be a significant part of the earnings rally. There was huge short interest on Power-One headed into the earnings. Four million shorts had been added to Power-One shares in the weeks previous to the earnings. Short covering alone can't explain the kind of volume that was experienced in Power-One shares, but its role in making an earnings rally seem huge can't be entirely discounted.

Number Three: Given the performance by Power-One in the previous earnings periods, there was no doubt a high level of event-driven trading going on around its earnings. There was commentary in the market from short-term trading firms about the opportunity in Power-One shares on Thursday ahead of its earnings, and so there were definitely traders looking to get a quick-hit earnings profit on the expected blowout quarter from Power-One, which it delivered.

Number Four: Power-One shares were trading below the $3 mark earlier this year, but it wouldn't take investors booking profits who had gotten into Power-One at below $3 for the profit-taking trade to make up a big part of activity in Power-One on Friday. Plenty of investors piled into Power-One after shares slipped from a 52-week high of $13 after its last earnings, down to the sub-$9 mark as recently as the end of September. A nice profit-taking opportunity availed itself of investors who entered Power-One shares just a month ago, and given the uncertain outlook headed into 2011, an investor couldn't be blamed for saying 'enough is enough'.