Tuesday February 12, 2013
by Timothy Lutts, editor Cabot Stock of the Month
Back in 2007, First Solar (FSLR) rose over 1000% before crashing. Today, it is profitable and cheap, analysts are raising their estimates, and the long-term potential is very positive as the cost per watt of solar power falls year after year.
When the solar market inevitably booms, First Solar -- -- our latest Stock of the Month -- is in position to be the market leader.
First Solar came public in December 2006 at 26, and soared all the way to a high of 317 in May of 2008. The base that was built following that crash—and which centered on 140— didn’t hold, and the stock crashed again in 2011 and 2012.
It’s been less than a year since the second crash, so it’s possible the stock needs more time. On the other hand, it’s been five years since the first crash, and that’s the one that took the stock out of the limelight.
In any case, the stock has built a new uptrend! It’s spent January consolidating its recent gains, while its 50-day moving average caught up. Today, there’s support at 25.
Getting to the fundamental story, First Solar is the king of the solar cell business, making its photovoltaic cells from cadmium telluride (CdTe). Founded in 1999, it’s grown revenues every year of its life, and there’s no reason to believe that trend won’t continue.
The story with earnings, however, has been slightly different. The company turned profitable in 2006, and grew earnings steadily as global demand boomed; particularly instrumental was Germany, where government incentives spurred installations.
Then Chinese companies ramped up production, leading to global excess capacity, while the mortgage and housing collapse, combined with the Eurozone troubles, depressed demand, leading First Solar to shutter its Germany factory, shut down four production lines in Malaysia, refocus its business on utility-scale products and appoint a new CEO!
In other words, the company has been through the wringer! But after posting losses in the last quarter of 2011 and the first quarter if 2012, First Solar is making profits again, and analysts have recently been raising their estimates (calling for $4 per share in 2013).
Furthermore, the long-term potential for the company remains unchanged; as the cost per watt of solar power falls year after year (just as the cost of silicon-powered computing capacity has fallen for decades and keeps falling), the market will boom, and First Solar is in position to be the market leader. I recommend buying now.
Learn more about this financial newsletter at Timothy Lutts' Cabot Stock of the Month.