Shares of Xantrex Technology shot up as much as 25 per cent today after the company said it would buy back up to 10 per cent of its public float on the open market. It closed the day up 18 per cent to $6.20. Why is this good news?

Well, obviously management thinks the company’s stock is undervalued, and considering it was trading at less than 1X revenue that would be a rational assessment. Fact is, since going public Xantrex has been a profitable company, with the exception of the last quarter. If you consider this a rough patch in an otherwise smooth road, there’s no reason why this stock should be trading at less than $6, let alone $10 or higher. Management, which has capital and is looking for acquisitions, is basically saying that Xantrex shares offer the best value on the market right now relative to peers in the field. It’s also a signal by management that it considers the company’s current woes a temporary event. Investors should interpret this as a reason to be confident in the company.

Consider the following:

* You’ve got a new U.S. energy bill that has extended by two years a production tax credit for wind energy developers, bringing much-needed stability to the market. This will likely spur wind development in the U.S., which Xantrex is positioned to benefit from.

* You’ve got a U.S. energy bill that is offering an attractive subsidy to those wanting to install solar PV systems on their homes and businesses, creating demand for inverters and thus more opportunity for Xantrex.

* You’ve got Xantrex working hard to tap a booming European wind and solar market. Once its distribution and marketing channels get in full swing, expect the company to see some material traction.

* You’ve got almost every province in Canada jumping on the renewable energy bandwagon. Ontario, meanwhile, is very close to unveiling a feed-in tariff program for small-scale wind and solar projects, similar to programs in Europe that led to explosive demand for power electronics. (More details to come).

* Finally, you’ve got a company board that tossed out its CEO out of frustration, a sign that the company is dead serious about getting its house in order — and fast. An interim CEO with impressive credentials has been appointed, and the hunt is on for a permanent candidate. Presumably, management is being told to act more aggressively to improve the company’s fortunes.

This is not to say Xantrex doesn’t have challenges along the way. What matters is whether investors have confidence in the company’s ability to overcome those challenges. The share buyback, in a way, is management saying it can.

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