Shares of First Solar (NASDAQ:FSLR) recently hit a level they haven't seen in nearly a decade. The market has been pushing solar energy stocks higher, thanks to both improving economics from some companies and the hope that Joe Biden will win the presidency and bring with him a push for more renewable energy in the U.S. 

The move is a little odd for a company that has shed a large chunk of its business over the last few years and doesn't have the growth opportunities some of its competitors have. So is First Solar's stock still a value today, or is this an overpriced stock? Let's take a look. 

FSLR Chart

FSLR data by YCharts

What First Solar does

It's important to first take a step back and cover what First Solar does. The company makes thin-film solar panels and develops a small number of solar power plants each year, but that's about it. It's been selling off or shutting down its asset ownership business, an O&M business, and the engineering, procurement, and construction arm that was involved in executing power plants. This is no longer a vertically integrated solar giant. 

The focus on making solar panels makes First Solar a more specialized business, which could lead to more efficiency and better margins long-term -- but also limits the potential upside for investors. 

Large solar farm on a partly cloudy day.

Image source: First Solar.

How First Solar makes money

Right now, First Solar has a manufacturing capacity of about 6.5 gigawatts (GW). If we assume a sale price of $0.30 per watt, the company's manufacturing revenue tops out at just under $2 billion per year. And if we assume a maximum net margin of 10%, that's net income of just $200 million per year. You can see below that revenue has typically been higher than I outlined because of solar farm sales, but net income hasn't been anywhere near $200 million in the last three years. And even when net income has spiked, it's been thanks to a project sale. 

FSLR Revenue (TTM) Chart

FSLR Revenue (TTM) data by YCharts

The challenge with transitioning to primarily solar panel sales is that growth is constrained by manufacturing capacity. First Solar spent the last three years spending about $1 billion upgrading capacity to the new Series 6 solar panels. To add capacity today would require new factories, which would take both time and money to get up and running. 

How First Solar can grow

With net cash of $1.4 billion on the balance sheet, First Solar has the money to invest in new manufacturing capacity. And given the need for growth, it may end up doing just that. But remember that when capacity is built, it's expensive to upgrade -- and that's when solar companies get into trouble. 

The other option for growth is to vertically integrate the company, but First Solar just spent the last few years unwinding vertical integration. So it's unlikely to do that anytime soon. 

You can see here that the problem is that First Solar's upside is currently limited. The company could potentially expand margins, but without a large investment in more manufacturing, it's hard to see much growth in the next few years. And net income could top out around $200 million to $300 million per year without significant system sales. 

Is First Solar a buy? 

Even if First Solar hit the top end of the net income band I outlined, its shares would be trading for more than 30 times earnings. That's a hefty multiple for a company that doesn't have a lot of growth options. 

I think First Solar is a steady solar company and world-class manufacturer, but it's too rich right now after a long run-up in shares since April. As a result, I don't think this stock is a buy -- but I wouldn't short the stock either, in case the market continues to push renewable energy stocks higher going into a new administration. 

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.