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 - Get Report), 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'.
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
Check Out Our Best Services for Investors
Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.