Is Pioneer Power Solutions Stock A Buy?

Pioneer Power Solutions, Inc. (NASDAQ:PPSI) is an industrial electrical generation and distribution equipment company. It manufactures, sells, and provides after-sale services for a variety of commercial, industrial, and backup power needs.

You’re likely using its products without even knowing, but that doesn’t mean the company is worth investing in. The question on investors’ minds boils down to: is Pioneer Power Solutions stock a Buy?

The company recently sold its transformer business to private equity firm Mill Point Capital for $60.5 million in cash and $7.5 million in promissory notes. This puts it in a good position with liquidity to buy its way out of any operational hurdles moving forward.

But it cuts off a valuable revenue stream.

Pioneer Power’s customers include Nexterra, Siemens, United States Steel, Target, Verizon, and Georgia Power. It also has competitors, and the war of business can get brutal in that sector. A California court blocked a dividend payment in 2019 based on a 2016 case involving confidential information.

Its parent company Provident Pioneer Partners also faced SEC scrutiny in the early 2010s for insider trading. Even with a 2021 post-pandemic boost, the market valuation still isn’t near where it traded before 2012.

This corporate intrigue mixed with the lack of overall information online means we have to shine a light on Pioneer Power Solutions to determine if it can power more gains for investors or will continue leaving them in the dark.

Pioneer Power Solutions 101

Pioneer Power Solutions and its subsidiaries develop, market, and service on-site power generation, storage, and distribution equipment. The Fort Lee, New Jersey-based company has five locations around the U.S. and clients across North America.

The company’s two biggest busines segments are Transmission & Distribution Solutions under Pioneer Customer Electric Products and Critical Power Solutions under the Titan Energy Systems brand.

It’s involved in large-scaled copper, cells, sensors, breakers, and other electrical components, like fuses and switches. Partners on its supply end include Eaton Corporation (ETN) and Industrial Connections & Solutions.

But the struggle for power is never easy, and the company faces fierce competition. It got locked in litigation with rival Myers Power for four years over misuse of confidential information. The company settled that case in time to secure a $3.5 million order in Hawaii to end 2020.

That case prevented the company from paying investors a cash dividend in October 2019. California’s Superior Court blocked a $1.37 special dividend payment to investors that month. It gives dividend-loving investors a reason to perform due diligence before buying.

Here are a few numbers to get started.

Is Pioneer Power Solutions Stock A Buy?

Pioneer Power Solutions started 2021 with a market capitalization just under $40 million, although it has since more than doubled to over $83 million by the end of the month.

The company’s third quarter 2020 report showed $4.051 million in revenues for the quarter and $14.138 million for the nine months ending in September. It’s a year-over-year decline for the quarter, but the year still outperformed 2019 overall.

Its $739,000 in gross profit for the quarter brought the nine-month total to $618,000, although net income is still at -$2.242 million for the period. These losses largely left the company’s share prices floundering through the year.

Shares fell to a 52-week low of $0.90 during the 2020 market crash before growing to nearly $10.00 per share by the end of January 2021. This means investors who jumped on at the right time experienced 10x gains in under a 12-month period.

Because the company registered a loss, analysts believe the company’s price increase is due more to revenues increasing and the company approaching a break even point. Or it could be because it’s finally free of the court case that stopped its previous dividend payment.

This uncertainty highlights the risks of investing in Pioneer Power Solutions.

Risks Of Buying Pioneer Power Solutions Stock

Although it specializes in power generation, Pioneer Power recently sold its biggest revenue-generating business line. Its transformer business gave it $68 million, but it severely limited its potential profitability moving forward.

The company isn’t a major cash cow, and it’s trading for over a 4x premium over trailing 12-month revenues and about 10x over profits. That’s a big ask for investors who aren’t entirely sure of its business.

And while its legal troubles are over for now, there’s no guarantee it won’t get hit with another multi-year lawsuit. This makes it a riskier bet than more established companies with deeper information available online.

Even when digging into the company’s investor reports, they’re sparse compared to a company like Apple (AAPL) or Amazon (AMZN). This makes some bearish investors uneasy and gives reason to look into competitors.

Pioneer Power Solutions VS Competition

Power generation is a competitive industry, and Pioneer Power has a lot of rivals, besides the aforementioned Myers Power. It also competes with AZZ, Trench, and Howard Industries, among others.

Each of these companies are vying where possible to be the supplier for Pioneer’s customers. And the shift to virtual work corresponds to a change in power distribution needs. This could grow the industry over the next two years while businesses and governments adjust.

It’s still early, and there’s no telling how the company will move forward through the 2020s.

Is Pioneer Power Solutions Stock A Buy?

Pioneer Power Solutions is an industrial electrical generation and storage equipment manufacturer and distributor. It is a full-service company that continues maintaining products after installation. Its customers include high-level corporations, and the company recently shed legal issues involving a competitor.

Its share prices are on a roll in 2021, but they’re still not trading where the company was in the early 2010s. This highlights the risk of investing in the company. It needs to find ways to generate more income if it want to keep investors happy in the long term.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.