The Short Thinking Behind First Solarhttp://www.fool.com/investing/general/2013/11/20/why-are-there-so-many-shorts-in-first-solar-sunpow.aspx Jay Yao
November 20, 2013
First Solar (NASDAQ: FSLR) has a short interest of 14%. The short interest is particularly high compared to the short interest for Chinese solar companies such as Trina Solar (NYSE: TSL), which has a short interest of 5%, and Canadian Solar (NASDAQ: CSIQ), which has a short interest of around 7%.
People short for different reasons. Some short for technical reasons while others short for fundamental reasons. I personally do not know why the shorts are short, but below are some conjectures.
Government tax incentive dependence for a commodity industry prone to oversupply
Like all other cyclical industries, the solar industry is prone to oversupply. In 2011 and 2012, the solar industry went through a period of massive oversupply due to the rollback in European tax subsidies. Solar stocks fell sharply during that period. There could eventually be another period of oversupply due to a rollback of a major government tax credit or because the Chinese companies will keep on producing solar panels to gain market share even if they lose money. In those scenarios, First Solar's stock will likely suffer.
First Solar also operates in the utility-scale solar farm market, which has seen spotty demand. The company's backlog fell earlier in the year but has since recovered. This type of spotty demand is not as reassuring as the solar rooftop market demand, which has seen consistently strong growth rates of over 40% year over year.
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