Power Solutions International Inc (OTCMKTS: PSIX) Hits The OTC

Power Solutions International Inc (OTCMKTS: PSIX), the alternative-fuel power systems company, announced on April 17, 2017 that The NASDAQ Stock Market LLC had decided to delist the Company’s common stock from the Nasdaq exchange. Have a look:

"Announced that on April 17, 2017, the Company received notification from The NASDAQ Stock Market LLC ("Nasdaq") that the Hearings Panel has determined to delist the Company’s common stock from Nasdaq, and will suspend trading in the shares effective at the open of business on April 19, 2017. The Nasdaq Hearings Panel’s determination was made in connection with the Company’s non-compliance with Securities and Exchange Act (“SEC”) filing requirements as set forth in Nasdaq Listing Rule 5250(c)(1)." Source

In our opinion, the shares are trading at the moment at a substantial discount due to this sell off. Most institutional investors can only invest in companies listed on major exchanges, such as the Nasdaq or the NYSE. When a stock is delisted from one of these exchanges, they don't even think about the logical value of the shares, they just sell all. Savvy traders know this fact, and buy in these occasions, as they are well aware that shares will go back to a more logical level once analysts have time to assess the company again. Have a look at the sharp collapse of the share price that this news created:SourceWhat kind of business the company operates?Power Solutions provides alternative fuel power systems for equipment manufacturers of off-highway industrial equipment, certain on-road vehicles, and integrated electrical power generation systems.Industrial Engines (from .97 liters to 8.8 liters):  from forklifts to generators, PSI is said to deliver durable, fuel-flexible and emission conscious engines:SourceOn-Highway Engines (from 4.8 liters to 11.1 liters): the engines are used for garbage trucks to school buses to delivery vehicles.SourceHeavy-Duty Engines (from 8.1 liters to 21.9 liters): reliable, heavy-duty power for professional use:SourceIn addition, Power Solutions provides wide range of valued-added solutions, including emission solutions, assembly solutions and others. You can find more information in this link.The opportunity - Book value per shareWe don't know what is going on, but it seems that PSIX is having difficulties in timely filing all required reports by the SEC:

"As previously reported, the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission (the “SEC”).The Company intends to promptly seek relisting of its common stock on a securities exchange once it has completed the restatement of its financial statements and it is current in its SEC filing obligations. " Source

In the last 10-Q reported, the company showed the financial accounts as of March 31, 2016. Honestly, the balance sheet looks very clean, and we don't believe that things can change much in less than a year:ASSETS (Dollar amounts in thousands)Current assetsCash$1,495$8,445Accounts receivable, net63,163104,365Inventories, net120,735130,347Prepaid expenses and other current assets9,4969,518Total current assets194,889252,675Property, plant & equipment, net24,28926,001Intangible assets, net30,31631,745Goodwill41,46641,466Deferred income taxes, net819819Other noncurrent assets7,1817,230TOTAL ASSETS$298,960$359,936LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilitiesAccounts payable$41,491$76,078Accrued compensation and benefits3,6494,009Other accrued liabilities16,04319,175Total current liabilities61,18399,262Long-term obligationsRevolving line of credit80,56897,299Private placement warrants2261,482Long-term debt, net53,94653,820Other noncurrent liabilities1,6701,776TOTAL LIABILITIES197,593253,639The total amount of shares outstanding is 11,583,831, which means that the total amount of inventories per share are close to $10. This is large amount of money waiting to be received. In addition, the book value per share is close to $9.2.So, let us recap. The shares are being exchanged, as of April 19, 2017, for $7, but on the balance sheet, we can see that the book value is much higher than that, and taking into account the inventories, the shares should be worth at least $10.In our opinion, the share price could go to a normal level for two reasons:

• Scenario 1: the company files the due reports and the shares are listed again on the NASDAQ.
• Scenario 2: OTC traders understand the situation and buy shares, increase the demand, and make the price go back to a logical level.

There is a bad scenario. If the company reports very bad numbers, it may regain compliance with the SEC and the share price may continue at the same level. In our experience, the market tends to be very pessimistic about this kind of events. The situation is normally better than what everybody expects. That's why we see an opportunity here.Smart money is here tooBefore the delisting, smart money was invested in PSIX.Royce & Associates LP1,098,206 sharesDec 31, 201610.09%8,236,545Wellington Management Company, LLP949,914 sharesDec 31, 20168.73%7,124,355Elk Creek Partners, LLC516,181 sharesDec 31, 20164.74%3,871,357State of New Jersey Common Pension Fund D420,000 sharesDec 31, 20163.86%3,150,000Gagnon Securities, LLC417,010 sharesDec 31, 20163.83%3,127,575Gagnon Advisors, LLC367,695 sharesDec 31, 20163.38%2,757,712BlackRock Fund Advisors157,791 sharesDec 31, 20161.45%1,183,432SourceSome of these investors have most likely sold as a result of the delisting. However, if PSIX regains compliance, they could come back in, if and when PSIX regains its listing.ConclusionPower Solutions is a smart investment play. The company did not file its last annual report and has been recently punished by the Nasdaq. We believe that many institutional traders had to sell their large stakes, creating a large sell off as well as creating a decent investment opportunity. From the assessment of the financial perspective of the company, we could conclude that the market is not pricing the situation very well. In addition, we believe that in the future, if the company releases its financial statements, the shares will be worth much more. To sum up, keep yourself informed about this company, since good news could be just around the corner. We will be updating our subscribers as soon as we know more. For the latest updates on PSIX, sign up below!Disclosure: We have no position in PSIX and have not been compensated for this article.