Despite the impressive bull market run for the S&P 500 and investor enthusiasm for sustainability lately, the solar energy market didn't have a great 2021. The MAC Global Solar Energy Index is down 26% over the past year, while the broader market had its ninth-best year over the past 50.
For investors willing to look past a bad year, though, there are some opportunities in the solar energy market that are worth considering right now. One that stands out to me this month is First Solar (FSLR 2.12%). Despite a poor stock performance in 2021, there are a couple of business catalysts that should set it up well over the next couple of years, and those buying now can get in at one of the more attractive entry points in a while. Here's a look at why First Solar looks like a solid buy in January and why it should be on your radar in January.
Image source: Getty Images.
Impressive growth pipeline
Historically, two knocks against First Solar over the years have been tepid growth of its manufacturing capacity and its concentration of sales in North America. From 2013 to 2018, it grew its manufacturing capacity by 1 gigawatt (GW) per year. A combination of the cyclical nature of the solar panel market, unpredictable government tax credits and subsidies, and First Solar constantly retooling its facilities to handle the manufacture of its most advanced panel all hampered growth of the business.
In 2018, the company started manufacturing its most recent panel, the Series 6. The product was so successful at the time that the company immediately discontinued several prior models and focused on getting all of its facilities working exclusively on this panel. Since then, the company's footprint went from 2.6 GW of panel capacity to 8.0 GW today building the Series 6 exclusively.
What's more exciting for investors, though, is future growth plans. Management is expecting to break ground on two new facilities -- one in the U.S. and one in India -- that, in conjunction with optimizing existing facilities, expects to double panel production by 2024.
Furthermore, adding a new facility in India should help to bolster its sales outside the United States. Right now, the company anticipates that 86% of its mid to late stage booking opportunities are in North America. Further down the pipeline, though, it anticipates about 55% of booking opportunities in North America.
Unparalleled financial strength
There are a lot of things that have made First Solar a unique company. Its panel technology uses a different semiconductor than most other panels, it has -- somewhat frustratingly -- been conservative about growth plans in the past, and has focused almost exclusively on utility-scale projects instead of delving into the residential market.
Another unique element about First Solar that has always separated it from its peers is the way it manages its balance sheet. For years, management has avoided taking on large amounts of debt and has always kept a massive pile of cash sitting on the balance sheet. As of its most recent quarter, the company had $1.66 billion in net cash (cash and marketable securities minus debt) in the coffers. For those scoring at home, that means about 18% of the company's market capitalization is net cash on the balance sheet.
While investors should expect that cash pile to dwindle a little as management builds its two new facilities, it's reassuring to know that management has kept over $1 billion in cash on hand since 2014 to manage the ups and downs of the industry and be ready to make significant investments.
A top energy stock for the long haul
First Solar isn't the newest name on the block when it comes to renewable energy, and its methodical approach to growth has probably frustrated some investors over the years. One thing you have to give First Solar credit for, though, is that it has managed through several ups and downs in the solar market -- it is much more cyclical than many think -- well over the years. There are a lot of businesses in renewable energy that many not be around several years from now, but chances are First Solar will continue to be a steadily growing company for many more years to come.
With a clear line of sight to doubling its existing manufacturing capacity over the next two years, plenty of financial firepower to get it done, a proven management team that has deftly allocated capital, and a share price that is almost 30% of its high, today looks like an opportunistic time to take a look at shares of First Solar.
