We came across a bullish thesis on Pioneer Power Solutions, Inc. (PPSI) on Idea Hive’s Substack by Idea Hive. In this article, we will summarize the bulls’ thesis on PPSI. Pioneer Power Solutions, Inc. (PPSI)’s share was trading at $6.09 as of Nov 1st. PPSI’s trailing and forward P/E were 26.56 and 14.95 respectively according to Yahoo Finance.
A businessman plugging in to a public charging station, symbolizing the services provided by the company.
Pioneer Power Solutions (PPSI) has recently made a significant update that is viewed positively by investors. As the company prepares to release its Q3 earnings in the coming weeks, the risk/reward profile of the stock remains attractive. PPSI, a manufacturer of electrical power management products, operates two main product lines: the mature, cash-generative e-Bloc (switchgear systems) and the fast-growing, yet unprofitable, e-Boost (portable fast-charging units for electric vehicles). The investment thesis for PPSI is straightforward, presenting a cost-effective way to capitalize on the anticipated expansion of EV infrastructure, especially given its sub-20x 2024 estimated price-to-earnings ratio, which appears undemanding against the backdrop of approximately 50% revenue growth over the past two years.
The company’s recent divestiture of the e-Bloc business to Mill Point Capital for $50 million, compared to PPSI’s current market cap of $73 million, marks a pivotal moment. This transaction, primarily in cash ($48 million) with a small equity stake in e-Bloc, values the divested unit at around 11x 2023 estimated EBITDA, reflecting a fair assessment of its worth. With the e-Bloc business now sold, PPSI has transformed into a pure-play manufacturer of mobile fast-charging units. The implications of this divestiture are significant, particularly concerning capital allocation. Management has indicated intentions to return capital to equity holders through stock buybacks or special dividends while exploring value-accretive acquisitions.
The historical context suggests that PPSI’s management is likely to announce a sizable special dividend, drawing from a similar situation following the 2019 divestiture of its Transformer Business, where a substantial dividend was initiated shortly after the sale. Although some may argue that the previous dividend was a minor portion of the overall proceeds, the potential for a larger acquisition exists. Management has hinted at looking for targets with over $25 million in annual revenues, which could provide operational synergies and expedite the path to profitability for e-Boost.
Regarding the valuation of the remaining business, preliminary assessments suggest that the e-Boost segment appears undervalued, currently assessed at $15 million. The e-Boost segment is expected to generate significant revenue growth, with forecasts of $20 million in 2024 and potentially exceeding $30 million in 2025 based on existing order backlogs. Despite a temporary slowdown in EV adoption in the U.S., the demand for mobile charging stations remains robust, bolstered by new product launches such as the upcoming HOMe-Boost unit for homeowners.
The investment thesis for Pioneer Power Solutions (PPSI) hinges on its favorable valuation, expected revenue growth from the e-Boost segment, and the possibility of returning capital to shareholders through dividends or buybacks after the recent sale of the e-Bloc business. This positions the company to benefit from the growing electric vehicle infrastructure market rendering PPSI an attractive investment opportunity.
Pioneer Power Solutions, Inc. (PPSI) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 1 hedge fund portfolio held PPSI at the end of the second quarter which was 6 in the previous quarter. While we acknowledge the risk and potential of PPSI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PPSI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.