How Low Will First Solar Go?

Shares of First Solar (Nasdaq: FSLR  ) hit a 52-week low on Monday. Let's look at how it got here and whether clouds are ahead.

How it got here
The solar industry malaise has taken a huge toll on all solar stocks and the once-infallible First Solar is no exception. Low-cost modules from China have driven the cost of modules lower for the last few years, and this has left most solar manufacturers fighting for survival.

Not all of the decline at First Solar has been because of increased competition and declining demand in Europe, however. Some of the wounds are self-inflicted. The company was forced to replace some modules made between June 2008 and June 2009 after it found they underperformed their warranty due to a manufacturing problem. The company has also put itself in a tough strategic position by focusing on low-efficiency modules. As the cost gap between its modules and more efficient modules slowly disappears, it makes First Solar's modules less attractive to installers.

When a company like First Solar falls, it falls hard. The stock has underperformed efficiency leader SunPower (Nasdaq: SPWR  ) as well as Chinese solar leaders Trina Solar (NYSE: TSL  ) , Yingli Green Energy (NYSE: YGE  ) , and Suntech Power (NYSE: STP  ) over the last two years.

FSLR Chart

FSLR data by YCharts

Despite all of this, First Solar still looks like the best value in the industry right now. The company has by far the best gross margins, a decent balance sheet, and is even predicted to post a nice profit next year.

Company

Gross Margin (Most Recent Quarter)

Cash

Debt

Forward P/E

First Solar 15.4% $663.6 million $864.3 million 4.1
SunPower 9.2% $302 million $693.5 million 11.5
Trina Solar 7.1% $816 million $1.0 billion 11.8
Yingli Green Energy 3% $662 million $2.3 billion 39.2
Suntech Power (2.2%) $492 million $2.47 billion N/A

Sources: Company filings and Yahoo! Finance. N/A = not applicable.

So should investors be buying here or running for the hills?

What's next?
First Solar isn't going bankrupt anytime soon and has a huge downstream pipeline of projects to help make it through the next few years. But I'm still not crazy about the stock right now.

As I said before, the company is in a tough strategic position with its low-efficiency modules. I have even suggested it may be time to break up the company. There is still value here, but the market doesn't see it.

The CAPS community is giving the stock a two-star rating (out of five), and I'm in the same ho-hum boat. There's not quite enough value yet to jump on board and I am not confident enough that the stock will fall further to give an underperform call. For now, I'll sit on the sidelines and let this drama play out.

Interested in reading more about First Solar? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium owns shares of SunPower in personal and managed accounts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of First Solar. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 15, 2012, at 2:16 PM, baselineace wrote:

    Someone's gonna buy this company. It's not going bankrupt, and there is an underlying reality despite what short sellers may think.

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