Shares of First Solar (NASDAQ:FSLR) have been blistering hot this year, surging more than 50%. That outperformance likely has investors wondering if the solar panel maker has enough power to continue the trend. Here's a closer look at the bull and bear case for the renewable energy stock.

The bull case for First Solar

Solar panel makers have struggled in recent years. While the industry has grown installations at a blistering pace, the price of solar panels has been under pressure due to intense competition. That has put pressure on margins.

Solar panels with the sun setting in the background.

Image source: Getty Images.

First Solar, however, is working to boost its profitability by transitioning to a new higher-margin solar panel, Series 6, which should enhance its future results. While the company posted a loss of $0.64 per share in the first quarter, it sees its full-year profit coming in between $2.25 and $2.75 per share, which would be more than 80% above 2018's level. Earnings should continue growing in future years as the company finishes up its manufacturing capacity expansions to support the robust demand for Series 6.

First Solar has the potential to grow at a fast pace for years to come given the jaw-dropping investment potential of the renewable energy industry. According to one estimate, the global economy needs to invest $10 trillion to transition from fossil fuels to renewables. Given that First Solar makes some of the most cost-competitive panels in the industry, it should be able to capture a meaningful portion of these investment dollars.

In addition to its high-powered earnings growth, First Solar also has the best balance sheet in the solar industry. The company currently expects to end this year with between $1.7 billion and $1.9 billion of net cash, which should only increase as it cashes in on Series 6. That gives it the funds to potentially enhance shareholder returns in the future. It could do that by investing in additional expansion initiatives or returning some of this money to investors via a dividend or share repurchase program.

The bear case for First Solar

The rally in First Solar's stock this year has its shares trading at a premium price. With the stock currently above $65 and the company on track to earn $2.50 per share at the midpoint of its guidance range, it implies that First Solar trades at 26 times earnings. That's well above the 21.7 times multiple of the S&P 500. While the company does expect to grow at a fast pace in the coming years, shares could tumble if it misses expectations.

Another concern with First Solar is that it needs to continue investing in new products so that it doesn't fall behind the competition. While the company doesn't make the most efficient panel, it does build one of the more cost-competitive ones. However, if future products don't stay ahead of the competition, the company could lose market share, which would impact profitability.

A third potential issue that could affect the company is government interference, such as tariffs on solar panels or changes in incentives. Since First Solar has more manufacturing capacity in the U.S. than any of its peers, it's not getting burned by the tariffs that the U.S. imposed on China. However, if those two countries work out a trade deal eliminating those tariffs, it could boost competition in the U.S., which might pressure First Solar's margins. Meanwhile, governments have been cutting back on their financial support for renewables in recent years as costs have come down. If they cut back too far, it could negatively impact panel demand, which would likely hurt First Solar's margins.

Verdict: First Solar is a buy

While First Solar's stock is trading at a higher price after rallying 50% this year, it could have much more room to run. That's because the company is just starting to transition to its new Series 6 panel, which should help power high-margin growth for the next few years. Add that to its top-tier balance sheet and the overall growth potential of the renewable energy market, and First Solar is one of the top stocks to buy in the sector.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.