The solar-power industry has been a difficult place to make money over the past decade despite explosive growth in solar installations worldwide. Manufacturers and installers have been in a battle to win business with little technological differentiation, which has pushed prices down at the expense of profits. 

One company that has managed to maintain profitability over a long period of time is First Solar (NASDAQ:FSLR), the thin-film manufacturer that was one of the pioneers of the industry. But with margins compressed and commodity solar panels improving every year, is this a millionaire-maker stock? 

Large solar farm in the desert on a sunny day.

Image source: First Solar.

First Solar's foundation

Any analysis of First Solar should start with the balance sheet. At the end of the first quarter, the company had $1.1 billion in net cash, and before COVID-19 struck, it expected to have $1.3 billion to $1.5 billion of net cash on the balance sheet at the end of 2020. That guidance was pulled recently, but as a proxy, we can expect the company to have over $1 billion in cash all year. 

That's a solid foundation considering it has a $4.6 billion market cap and expects to produce 5.9 gigawatts of solar panels this year -- equal to about 9% of all the solar power generation already installed in the United States. A strong balance sheet and large production base give First Solar a solid footing to both survive the year and pick up assets that may become cheap if competitors struggle. And in the solar industry, that's a big advantage. 

Competition is fierce

First Solar has been profitable long term, but it's shed some of the businesses that drove those profits. Management has shut down most of its systems development business and sold off most assets. Even the engineering, procurement, and construction business will be outsourced. At its core, First Solar is really just a solar panel manufacturer, for better or worse. 

These changes aren't necessarily bad. Solar companies have been unwinding vertical integration over the last few years, focusing on what they do best. But with the new focus, it'll be tough (if not impossible) for First Solar to grow revenue without a massive investment in new manufacturing capacity. 

Meanwhile, competitors like Canadian Solar (NASDAQ:CSIQ) and JinkoSolar (NYSE:JKS) are quickly increasing capacity and improving the efficiency of their products. The chart below shows how quickly they've increased revenue over the past decade as First Solar has seen business stagnate. 

FSLR Revenue (TTM) Chart

FSLR Revenue (TTM) data by YCharts. TTM = trailing 12 months.

This chart includes solar project sales, which can make results lumpy, but the broad picture that others are growing more quickly holds true and will likely continue over the next few years unless First Solar spends more of its money on capacity expansion. 

First Solar keeps chugging along

I think the best bet to grow the business is acquiring a competitor to add technology and new capabilities. But with manufacturers, including First Solar, moving away from the vertically integrated model, that may not happen. And there's no obvious acquisition target given First Solar's unique solar panels and the highly specialized utility-scale market it serves. 

What I think will happen is that First Solar will continue to be a leading solar manufacturer, generating strong profits and cash flow from its business. It could start returning some of the cash it generates to shareholders in the form of a dividend or buybacks, which may be a best-case scenario for this solar energy stock. But I don't think this is a millionaire maker, even in the booming solar industry.