Why Is FSLR Stock Going Bananas?

by Tom Taulli | March 19, 2014 4:12 pm

Why Is FSLR Stock Going Bananas?

A stellar past year for First Solar (FSLR[1]) just kept getting better Wednesday, as FSLR stock jumped roughly 20% to bring shares’ 52-week returns to nearly 150%.

first solar Why Is FSLR Stock Going Bananas?So, what’s powering this high-flying solar stock?

First Solar’s recently held company analyst meeting included a strongly bullish outlook for 2015. FSLR stock soared after the company said it expects to generate profits of $4.50 to $6 per share; for contrast’s sake, First Solar is only forecast to earn $2.20 to $2.60 per share in the current fiscal year.

News of a partnership with General Electric (GE[2]) to work on a utility-scale solar power plant design also helped juice shares Wednesday.

But should you join in on the euphoria and buy First Solar stock yourself?

FSLR Stock: Plenty to Like

Founded in the mid-1980s, FSLR is an American-based manufacturer of thin-film photovoltaic (PV) modules, which are more commonly known as solar panels. And much like the rest of the solar world, First Solar has been at the whims of a volatile market. Specifically, the unreliable nature of governmental policies has meant both boom and bust — for FSLR stock, that meant a bottoming out in 2012 that brought shares below $12.

Still, First Solar has survived, and thrived.

A key to First Solar’s success has been its efforts to lower the costs of its semiconductors. This is crucial to keeping FSLR less reliant on subsidies, which are fickle at best.

For example, First Solar’s cadmium-telluride modules recently set the highest efficiency ratios in the world[3]. The test was based on the exacting standards of the U.S. Department of Energy and were done at large-scale production levels.

FSLR also is helped by its vertically integrated model, including handling project development, plan optimization, grid integration, project finance, energy forecasting and tracking systems. This has given First Solar much more control over its costs.

Lastly, scale is another key factor for FSLR. Aiding on this end is a just-announced joint venture with General Electric, which should go a long way toward pumping up capacity. Also, First Solar landed a 20-year deal with Jordan concerning a 53-megawatt power plant.

And of course, the longer-term driver for FSLR stock is much the same as solar stocks — an increasing world drive to move away from fossil fuels and toward more renewable sources of energy.

Has First Solar Gotten Ahead of Itself?

While FSLR might seem like a great source of momentum, investors should be cautious … for the very same reason.

Again, FSLR stock, like many other solar stocks, is susceptible to wild swings. Sometimes it’s changes in governmental policies, though sometimes it’s just the mere anticipation of global slowdowns looming over subsidies that has spooked solar investors. Plus, there has been a history of recurring price wars that can wreak havoc on margins.

Not to mention, FSLR stock clearly seems to have absorbed much of the good news anyway. Should we see a dampening of demand — which isn’t unreasonable — First Solar is ripe with downside risk.

Short sellers have seen the danger coming; about 25% of FSLR stock was in short positions as of the end of the month. No doubt, at least part of today’s rush was from several of those shorts getting scooted out.

If you’re not already holding First Solar stock, your best bet is to move along. The show just got a lot more exciting today, sure … but also a lot more dangerous.

Tom Taulli runs the InvestorPlace blog IPO Playbook[4]. He is also the author of High-Profit IPO Strategies[5]All About Commodities[6] and All About Short Selling[7]. Follow him on Twitter at @ttaulli[8]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. FSLR: http://studio-5.financialcontent.com/investplace/quote?Symbol=FSLR
  2. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  3. recently set the highest efficiency ratios in the world: http://www.solarserver.com/solar-magazine/solar-news/current/2014/kw09/first-solar-achieves-new-world-record-for-cdte-efficiency-reports-dip-in-q4-revenues-but-solid-profitability.html
  4. IPO Playbook: http://investorplace.com/ipo-playbook/
  5. High-Profit IPO Strategies: http://goo.gl/TXQsz
  6. All About Commodities: http://goo.gl/FfP8R
  7. All About Short Selling: http://goo.gl/t5Jzb
  8. @ttaulli: https://twitter.com/ttaulli

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