Power Solutions International (NASDAQ:PSIX) Shows Strong Growth Metrics, Fits Proven Investment Strategy

Power Solutions International (NASDAQ:PSIX) has appeared as an interesting candidate for investors using a disciplined growth strategy. The selection method is taken from Louis Navellier’s “The Little Book That Makes You Rich,” which describes eight fundamental rules for finding companies with better growth potential. This approach concentrates on specific financial metrics that indicate a company is not only growing but also increasing its profitability and operational effectiveness. The strategy emphasizes positive earnings revisions and surprises, strong sales and earnings growth, increasing margins, good cash flow generation, positive earnings momentum, and a high return on equity.

Meeting the Growth Criteria

Power Solutions International shows a good fit with the main ideas of the growth screening strategy. The company’s recent financial performance displays the high growth characteristics that the method aims to identify.

• Earnings Revisions and Surprises: A main idea of the strategy is that upward revisions in analyst estimates often come before positive price movements. PSIX shows a large 53.1% increase in the average EPS estimate for the next quarter over the last three months. Also, the company has a perfect history of beating expectations, having delivered four positive earnings surprises in its last four quarterly reports, with an average beat of 69.5%. This regular ability to do better than forecasts makes analysts re-examine their models and can be a significant factor for the stock.

• High Sales and Earnings Growth: The strategy requires companies to show increasing growth. PSIX reports notable momentum on this point.

  • Sales Growth: Quarterly sales increased 73.5% compared to the same quarter last year, while trailing twelve-month revenue grew 40.1%.
  • Earnings Growth: The growth in earnings is even more noticeable, with quarterly EPS up 211.1% year-over-year and TTM EPS increasing by 175.6%.

• Increasing Profitability and Good Cash Flow: It is not sufficient for a company to only grow its revenue; it must convert that growth into higher profitability. PSIX does well here, with its operating margin increasing by 21.4% over the past year. This shows the company is managing costs well as sales rise. Also, the firm’s free cash flow grew by 35.8% over the past year, offering financial flexibility to support future growth without heavy dependence on external financing.

• Earnings Momentum and High Return on Equity: The strategy looks for proof that growth is increasing, not just continuing. PSIX’s current quarterly EPS growth of 211.1% is much higher than the growth rate from the similar quarter a year ago (157.1%), confirming positive earnings momentum. Finally, the company produces an excellent Return on Equity (ROE) of 81.8%, indicating very effective use of shareholder capital to generate profits.

Fundamental Health Overview

A wider fundamental analysis of Power Solutions International supports the positive image shown by the screen. The company gets a good overall rating, with especially high scores for profitability and financial health. Its profit margins are in the top group in the Electrical Equipment industry, and important solvency metrics, like a good Altman-Z score, point to a stable financial position. While the valuation seems reasonable compared to the industry, it is important to think about this alongside the company’s high growth rates and high profitability, which may support a higher valuation.

A Starting Point for Further Research

Power Solutions International offers a good example of a company that fits the strict, number-based criteria of a tested growth investing strategy. The match of its financial metrics with the eight rules from “The Little Book That Makes You Rich” makes it a stock deserving of more study for investors interested in high-growth opportunities.

This analysis of PSIX was produced from a screen based on Louis Navellier’s method. To see other companies currently passing this growth screen, you can view the full list of results here: Little Book Strategy Screen.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.