Power-One's Volatile Profile: Earnings Preview

NEW YORK (TheStreet) -- For solar investors who like to trade earnings volatility, is there a better stock than solar inverter company Power-One (PWER)?

Power-One reports after the close on Thursday, and if recent history is any judge, Power-One shares will react, while which way they react remains open to question.

After Power-One's first- and second-quarter earnings, when its growing success in the solar inverter market during a time of healthy solar demand became apparent, shares of the company rallied strongly. It also made the solar inverter stock suddenly among short investor's favorite targets too, and after Power-One's third quarter report, shares sank as low as $8.33.

Power-One is a stock that's been as low as $3 at the beginning of 2010 and as high as $13 before the shorts set in. Maybe there's reason to believe that this earnings report will be less volatile than recent Power-One reports as investors better understand the company, and the company itself has attempted to temper expectations about margin growth and revenue growth after its 2010 skyrocketing.

Maybe.

On the other hand, with the latest data from Italy showing a huge installation base for solar in the last quarter of 2010, there's room to the upside for Power-One. Yet a big fourth quarter, and another big quarter for Power-One, doesn't necessarily mean that shares have room left to run. In fact, with Power-One shares up 10% in the past five trading sessions, and strong results expected for the fourth quarter, another earnings rally seems like it would be a more difficult trick to pull off.

Indeed, it can also be argued that an Italian market that is too strong as reflected in Power-One results would only reinforce the case that its business is over-reliant on markets set for a big fall.

Granted, when MEMC Electronic Materials (WFR) reported on Wednesday, its report sent the entire solar sector through the roof, including Power-One, which briefly saw shares touch above the $12 mark for the first time since October -- and that was notably when Power-One shares fell precipitously after its third quarter earnings report. The MEMC report wasn't the typical solar rally report, either, since it actually missed estimates, but guided higher. In the past quarter of solar earnings, beat-and-raise reports and guidance raises were often met by sell-offs, as investors lacked conviction about the 2011 demand scenario.

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