First Solar (NASDAQ:FSLR), the thin film solar panel maker, hasn’t been this hot since 2011. FSLR stock shares were due to open Oct. 15 at $81 each, up 49% on the year. That’s a market cap of $8.8 billion, a price to earnings ratio of 89x, but still less than three times last year’s revenue of $3 billion.
The problem is there’s no obvious catalyst for its rise, save the usual Wall Street tub-thumping. Yes, Joe Biden likes solar. I like solar. Yes, First Solar is one of the few truly American plays in the space, with a plant outside Toledo. (It also has plants in Malaysia and Vietnam. )
But earnings are not expected to be huge when announced Oct. 27, just 61 cents per share on revenue of $676 million. What’s happening?
FSLR Stock and the Solar Bug
Mainly, the market just wants solar stocks right now.
Solar has achieved what I called “crossover” a decade ago. Advocates like to say the “levelized cost” of solar is now lower than natural gas. That means it costs less for utilities to put out a field of solar panels than to build and run a new natural gas plant. (Wind energy is even cheaper.)
Residential solar remains relatively expensive. Without subsidies it’s still more expensive than coal, especially when you add the cost of batteries to keep power flowing overnight. But these costs, too, are falling, while those of natural gas are rising.
People can now see the trend, and the trend is toward renewable energy.
First Solar’s Limits
Solar stocks have been here before.
A decade ago, when the oil boom that peaked in 2014 was getting underway, First Solar was making more millionaires than solar panels. Shares rose to over $300 each in 2008 and were at $190 during the financial crisis. But making panels wasn’t wildly profitable. As Chinese competition grew, American solar stocks fell. By 2012 First Solar shares were selling at $15.
First Solar learned hard lessons during that time. It’s a conservatively managed company, in the best possible way. The second quarter analysts considered so stellar saw year-over-year sales growth of just 10%. Only $37 million hit the net income line. But in June there was $1.6 billion of cash and equivalents on the books, and just $585 million of long-term debt.
Some analysts say it has too much cash. First Solar has gone away from doing its own engineering and construction. Capital spending has been cut to the bone. It’s now just a panel maker.
That’s a problem at a time of revolution. New materials like plastics and perovskite are about to transform the business. Solar is going to become a consumer product in this decade. First Solar is not ready for that.
The Bottom Line
One thing First Solar is very good at is recycling. It recovers 90% of the material from old panels. It has a sustainable supply chain. In places where this matters, like Europe, this is winning First Solar new contracts.
But it’s not wise to expect politics to make you rich. Like the rest of the industry, First Solar is not ready for the change new materials and techniques are bringing. I think its conservatism is about to catch up with it.
Some of what’s happening in the solar space is Biden fever. It feels a lot like what happened during First Solar’s heyday, when former President Barack Obama had dark hair. That ended in tears for investors. First Solar is overpriced.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn
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