Power Solutions International.
1.400% return in a year. Oh mama...
“Aerodynamics are for people who can't build engines.”
Enzo Ferrari.
Power Solutions International.
Ticker: PSIX
Today I will talk about a company that has risen 1,400% in the last year. If we compare its stock price with the S&P 500, the chart is frustrating. Frustrating that we didn’t buy it, of course.
At Power Solutions, they manufacture engines for the energy, industrial, and transportation sectors. High-performance engines powered by multiple fuels, such as natural gas, propane, gasoline, diesel, and biofuels. Their power systems are used in power generation, data centers, and microgrids.
They also supply engines and batteries for forklifts, agricultural, industrial, and construction machinery. Even propulsion systems for port and military equipment.
"Give me an engine, and I will move the world!" Archimedes would say if he visited this company.
FUNDAMENTAL
What stands out the most at Power Solutions are its outstanding margins and returns on capital. You’ll rarely see a company with a 12% net margin. They hardly issue any new shares, which is great for shareholders, and their debt is very conservative. It’s clear they are not going bankrupt.
Sales and EPS trends have increased over the last three quarters, coinciding with the stock’s rise.
Surprisingly, despite such a massive price increase, the P/E ratio is only 14x earnings, and the Price/FCF is just 12x. Is it cheap? I think so.
TECHNICAL
Technical analysis indicates that the company has begun a significant correction, currently dropping below the first potential rebound zone.
The previous correction was 50%. So far, this time, it has “only” fallen 30%. If it reaches the second buying zone, it would be down 40%, a decline more in line with the previous one.
Perhaps the $25 to $27 range could act as a new “support” level or second buying zone, and serve as a potential entry point.
CYCLES
Cycles always mean little when dealing with a company with strong “momentum,” as is the case here.
Right now, they indicate an upswing or potential rebound by the end of February, followed by another drop the next month.
FINAL THOUGHTS
Power Solutions International, aside from manufacturing engines, leverages synergies with the Chinese auto parts group Weichai. This, along with the recent economic stimulus from the Communist Party, could be another strong tailwind for PSIX.
The question is simple: Will PSIX rebound, or will it continue to decline?
If we look at the fundamentals, the company is cheap enough to keep rising. Its quality is beyond question.
If we rely on technical analysis, I would expect a rebound or price consolidation, which hasn’t happened yet—but it’s certainly close. The RSI is approaching lows, and that’s usually where the price bounces.
With Power Solutions International, we wrap up the second of our two portfolios, each with five companies. In the next article, we’ll review how they have performed.
Will we beat the S&P 500? Or will we sink into the dark, swampy abyss of negative returns and dreadful portfolios?
And that’s it for this article. If you liked it, you know what to do—be generous and share it with someone else!
Cheers!!!