Power Solutions International: The Next Big Buy After the Dip

Power Solutions International, Inc. (PSIX) delivered exceptional performance in 2025. The earnings surged on the back of strong demand for clean energy engines. The company secured key contracts and expanded its reach in high-growth markets. This article discusses the financial and technical performance of Power Solutions International to identify the next buying opportunity in the stock. The stock has been overextended and broke the record closing levels, but the breakout has not yet been confirmed. The confirmation of this breakout will depend on the August 2025 monthly close.

Financial Performance of Power Solutions International

Power Solutions International delivered record-breaking results in Q2 2025. Revenue surged 74% year-over-year to $191.91 million, as shown in the chart below. Moreover, net income more than doubled to $51.21 million.

A sharp increase in the Power Systems segment fueled this growth. The revenue in this segment grew by $83.8 million compared to last year, offsetting minor declines in the Industrial and Transportation segments. The strong demand from data centres and oil and gas drove this expansion. The company concentrated its resources on higher-growth sectors, reflecting a deliberate strategic shift.

The chart below shows that the gross profit has increased to $53.78 million, while the gross profit margin declined to 28.02% due to product mix and ramp-up inefficiencies. This margin pressure reflects the cost of scaling quickly to meet demand. However, the company maintained strong profitability and continued to expand its market presence.

Moreover, the operating expenses increased to $21.6 million, driven by incentive programs and growth-related costs. Despite higher expenses, operating leverage remained intact. Interest expense dropped to $1.7 million from $2.9 million, reflecting reduced debt and lower effective borrowing costs.

The free cash flow trend of Power Solutions International turned positive after 2023, as shown in the chart below. Free cash flow now stands at $61.64 million, reflecting solid financial health and improved liquidity. This indicates that the company generates significantly more cash than it spends, enhancing its ability to reinvest, reduce debt, or return value to shareholders.

Furthermore, the balance sheet also improved as the cash stood at $49.5 million. On the other hand, the total long-term debt has dropped to $146.28 million, as shown in the chart below. The company refinanced its revolving credit agreement, extending maturity to 2027 and raising capacity to $135 million.

Power Solutions International: A Rally Built on a Strong Foundation

Quarterly Surge Signals Strong Growth Momentum

Power Solutions International experienced a strong surge starting in 2024, reaching record levels by 2025. The quarterly chart below shows that the rally began in Q2 2024 and accelerated in the subsequent quarters. It is found that each quarterly candle after Q2 2024 reflected solid upward momentum.

However, Q1 2025 was negative, but it marked a significant bottom for the next phase of growth. This growth emerged in Q2 2025, when the stock formed a bottom and delivered a substantial gain of 155.85%. It was followed by another strong rally in Q3 2025, pushing the price to a peak of $121.78 before a correction began in August 2025.

From a long-term perspective, the highest historical quarterly close stands around $75, as shown by the red-dotted trend line. It is found that Q3 2025 became the first quarter to challenge this level. However, the Q3 2025 has not yet closed above $75. Despite recent volatility, the price action suggests that the stock could continue to swing in both directions before establishing a sustainable trend.

It is observed that the base formation built between 2017 and 2023 provides strong structural support. This prolonged consolidation phase suggests that Power Solutions International may have reached a long-term bottom. As a result, the stock appears poised for significantly higher levels once the current correction is complete.

Multi-Year Base Breakout Confirms Long-Term Buy

This situation is further confirmed on the monthly chart. The bottom formation from 2016 to 2023 provides strong structural support. A clear breakout occurred in July 2024, triggering a sharp rally in the stock. The monthly close in July confirmed the breakout of this multi-year base. The chart shows that the previous highest monthly close was $82.75 in April 2014. In July 2025, the stock closed above this level, marking a significant technical breakout.

However, for a confirmed breakout, the market needs two consecutive monthly closes above $82.75. In August 2025, the stock hit a new record high of $121.78 but sharply corrected below the $82.75 area. This move challenges the strength of the breakout and puts short-term momentum at risk.

May, June, and July 2025 rank among the most substantial monthly gains in Power Solutions International’s history. The recent drop in August forms a bearish hammer candle, though it has not yet been confirmed. It remains uncertain whether August will confirm a bearish hammer or signal a bullish continuation.

If August closes below $82.75, it would confirm a bearish hammer and suggest further downside. However, a close above the $95 level will indicate that the stock is stabilising within the ongoing surge and is likely to continue higher toward new record levels in the coming months.

Weekly Setup Reveals the Buy Zones After the Drop

The weekly chart reveals the reason for the price surge in July and August. The chart below shows the formation of an ascending broadening wedge pattern from the 2024 lows. This pattern highlights strong long-term support around the $28 level and long-term resistance between the $75 to $77 area. The resistance zone of $75 to $77 was tested and broken in June 2025, after which the stock continued to rally and reached a record high in August 2025.

Following this sharp upward move in Q3 2025, gaining nearly 100%, the stock reversed lower as the market became overextended above the $75 to $77 resistance zone. This condition is known as price exhaustion. The price exhaustion triggered a correction. However, the surge from the 2025 lows and the parabolic momentum suggest strong support lies in the $75 to $77 region.

If August closes above the $82.75 level, it will likely confirm the $75 to $77 zone as new support and point to further upside within the current extension phase. On the other hand, if August closes below the red trendline of the ascending broadening wedge ($75), it will indicate more room for correction in Power Solutions International.

Daily Chart Shows Where to Buy the Dip

This situation is further clarified by the daily chart, which shows a similar ascending broadening wedge pattern with strong resistance around the $75 area. As discussed above, this resistance was breached, and the price entered an exhaustion phase. The stock is now pulling back toward the $75 support zone. If this support holds, the stock may resume its upward movement. However, if the August monthly close falls below the red trendline, it would indicate further room for correction in Power Solutions International.

Despite the recent pullback, the strong rally in 2025 has established a bullish trend. Therefore, this correction may be viewed as a strong buying opportunity for long-term investors.

Valuation Still Favours Buyers Despite the Pullback

Power Solutions International is trading at a price-to-earnings (P/E) ratio of 16.62 as of August 2025. This level shows substantial improvement compared to early 2023, when the P/E ratio was near its lows. The rising trend in valuation reflects more significant earnings, record profitability, and improved investor confidence. A P/E in the mid-teens signals that the stock is not overly expensive relative to its growth trajectory.

Moreover, Power Solutions International trades about 15% below the sector median P/E of 21.15. This leaves room for upside if earnings momentum continues. This 15% discount also indicates that the market still prices in some risks tied to past volatility and restructuring. However, the rebound in free cash flow and consistent earnings growth strengthen the investment case. If the company sustains this trajectory, the current valuation looks attractive for long-term investors.

Market Risks

Power Solutions International faces risk from economic slowdowns. A decline in industrial activity or weaker demand from data centres and energy markets could hurt revenue growth. Moreover, the rising input costs and supply chain disruptions also remain threats to profitability.

The company carries exposure to debt markets. Although leverage has declined, higher interest rates or tighter credit conditions could increase borrowing costs. Any difficulty in refinancing future obligations may weaken financial flexibility.

Power Solutions International is also vulnerable to market volatility. The recent sharp correction shows how quickly momentum can shift. If the stock closes below $75 in August, technical breakdowns could accelerate selling pressure.

Conclusion: Why This Dip Could Be a Long-Term Buy Opportunity

Power Solutions International enters the second half of 2025 with strong momentum and solid financials. The revenue is rising sharply, while free cash flow and reduced debt signal financial discipline. The company’s focus on high-growth segments like data centres and energy is paying off. Despite margin pressure, profitability remains healthy, and operating leverage is intact. These fundamentals position the company for the long-term growth outlook.

From a technical perspective, Power Solutions International shows signs of consolidation after an explosive rally. The stock closed above its highest monthly level in July but has not confirmed the breakout in August. Additionally, Q3 2025 has yet to confirm a break above the highest quarterly close. The sharp drop from record highs, just below that key level, reflects price uncertainty.

A monthly close above $82.75 would maintain the bullish outlook, while a quarterly close below $75 in Q3 2025 would signal further downside. However, any correction in the stock price should be viewed as a strong buying opportunity. The stock finds strong support around $75, $62, and $48. A deeper correction toward $28 would offer a long-term entry point for investors with minimal downside risk.