Please ensure Javascript is enabled for purposes of website accessibility

Is First Solar Stock a Buy?

By Travis Hoium - Updated Apr 19, 2020 at 10:36AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

First Solar has one big advantage over every other renewable energy company.

The solar industry is going to have a tumultuous year, and there may not be many winners to choose from. A report by the Department of Labor said that 106,000 clean energy workers lost their jobs in March, and a big chunk of those were likely in the solar industry, showing just how quickly the industry can be affected by an economic downturn. 

With current social restrictions, small installers will have a hard time selling residential solar door-to-door, and large solar developers may have projects pushed back because electricity demand has plunged during the COVID-19 pandemic. Then there are manufacturing shutdowns across the world that will affect nearly every manufacturer.

Amid all of the challenges, though, there's one company built to survive and thrive, and that's First Solar (FSLR -1.04%)

A large solar farm in the desert

Image source: First Solar.

Where First Solar stands today

After a few years of strategic changes that sold off solar asset ownership and shut down most engineering and procurement activities, First Solar is fully focused on manufacturing thin-film solar panels. 

Those thin-film solar panels aren't the most efficient panels out there -- they're 18.2% efficient at turning the sun's energy into electricity, while industry leaders can reach 22% or more -- but they're more effective in other ways. Thin-film panels perform better in heat, high humidity, and even handle dirt and debris better than traditional silicon-based solar panels. This makes First Solar's product cost-competitive in the utility-scale market it serves. 

What makes First Solar profitable is the fact that it has low costs and scale that few competitors can match. The company had 6 gigawatts (GW) of capacity at the end of 2019, and that'll grow to 8.0 GW at the end of 2021 as it upgrades plants to its Series 6 production process. 

Cash is a strength

There aren't many companies with enough cash on their balance sheets to cover multiple years of operating expenses if we're in for a prolonged downturn, but that's what First Solar has. It had $1.8 billion in net cash on its balance sheet at the end of 2019, and management expected operating expenses to be $340 million to $360 million in 2020. That's plenty of cash to get the company through the current crisis. 

A solid balance sheet also allows First Solar to acquire competitors if it so chooses. The company has unwound some of its previous vertical integration strategies, but it could acquire competitors who make products that compete in markets it doesn't serve, such as residential and commercial rooftop solar. This could diversify First Solar's business and provide growth at the same time. 

First Solar's risk

As strong as First Solar is today, there are some risks facing the company. In the highly competitive solar industry, competitors who make commodity solar panels have typically been able to lower prices and costs rapidly during times of weak demand. That's cut First Solar's revenue per watt and caused gross margin to shrink by about half (and at times more) over the past decade. 

The other risk is that global solar installations fall rapidly in 2020 and 2021 as utilities plan for a prolonged reduction in demand for electricity. That could shrink the company's market opportunity over the long term and cause solar panel manufacturers to fight even harder for the market that's left. 

Is First Solar a buy?

I think First Solar is one of the few renewable energy stocks built to endure in the current economic and energy environment. It has 12.4 GW of bookings for future solar panel deliveries, a great balance sheet, and solid technology that's improving every year. 

There are certainly risks facing the company and the industry overall, but right now, the long-term opportunity outweighs that risk. 

Travis Hoium owns shares of First Solar. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
$116.99 (-1.04%) $-1.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.