Capture First Solar, Inc. Stock’s Scorching Profits While You Still Can

FSLR - Capture First Solar, Inc. Stock’s Scorching Profits While You Still Can

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I hate to admit it, but First Solar, Inc. (NASDAQ:FSLR) is having a brilliant time in the markets. Year-to-date, FSLR stock isn’t that remarkable, up around 15%. However, over the trailing year, First Solar tore up the markets, returning shareholders a whopping 170% return.

Best of all, the company’s performance greatly outshines its competitors. Rival Canadian Solar Inc. (NASDAQ:CSIQ) offered a respectable 20% in the past year, but it’s nowhere near FSLR stock. SunPower Corporation (NASDAQ:SPWR) put up very similar numbers in the same time frame, or 22%.

Unfortunately, in hindsight, I unnecessarily cautioned against buying First Solar shares. On Sep. 8 of last year, I stated that the company was excessively hyped but without fundamental justification. Since then, FSLR stock has rocketed 55%, leaving me with egg on my face.

So what exactly happened? Late October, First Solar released its third quarter 2017 results, which produced a massive 131% earnings surprise. That mooned FSLR, as you might imagine. Another solid outing in Q4 led to a significant rally this year.

I concede that you can’t argue with the results. Try as I might, the markets have their own logic, and they are always right. Having said that, I firmly believe that most of the run-up is due to investor speculation; if you drill down into the details, the FSLR rally has vulnerabilities.

Here are three reasons why I’m still cautious on First Solar despite its recent performance.

First Solar or Any Solar Is Simply Inefficient

One of the biggest reasons why I remain bearish on FSLR stock is solar energy’s inefficiency. If you’re looking to power a pocket calculator, fine. But if you want to run an air conditioner, even a small one will require 7.5 amps on a 120V circuit. Bump that up to a whopping 30 amps on a dedicated 240V circuit.

I think most people have a grave misunderstanding when it comes to renewable energy. To power a home daily for mundane purposes, perhaps you can get away with bolting a few, ugly solar panels on your roof. But for something more extensive like the AC, forget it! You’d probably run out of roof before you can adequately run your cooling device.

Right now, renewable energy companies like First Solar are enjoying the trendiness of their industry. But when it comes down to brass tacks, the upfront costs are prohibitive. True, you can eventually break even, but you have to remember that solar panels don’t last indefinitely. Also, the time to get break even can extend unexpectedly if you use the AC or any high-amp device.

One more point on this topic: If renewable energy is supposedly so amazing, how come nations that utilize it don’t have cheaper utility bills?

FSLR Stock Faces Old-Tech Risks

Another possible reason why FSLR stock has performed remarkably well over the past few months is its “new tech” cred. Companies like, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are where they are because they embrace innovation. Adapt or die, as they say.

But a key irony is that First Solar’s biggest competition may not be other innovators, but industries older than the sands of time. For instance, people love the Prius from Toyota Motor Corp (ADR) (NYSE:TM). It’s an environment saver, producing fewer carbon footprints than traditional vehicles, whatever that means.

It’s all fun and games until you have to replace the Prius’ battery. You then balk at the $2,300 to $2,600 price range, and that’s just the unit cost. Ultimately, once an electric vehicle’s battery goes, it may be better just to buy another car. So much for being green and not wasteful.

This brings me back to FSLR. It might produce the next big thing in renewable energy. But once the hidden costs of renewables become further known, traditional energy sources become more attractive. Because let’s face it: Who wants to have ugly, expensive solar roof panels if standard energy costs decline for whatever reason?

First Solar’s Increasingly Unattractive Financials

Several years ago, you might make a case for FSLR stock based on its potential. Indeed, for fiscal year 2014, things were rolling in the right direction: strong revenue growth, exceptionally high net margins relative to the industry, and positive earnings trend.

Fast forward to the last fiscal year, and things have notably gone awry. Top-lines sales are lower than either FY2014 and FY2015 results, while operating margins have deteriorated sharply. Plus, the company is no longer making money, thus making FSLR stock dependent on a story. That story, as I mentioned earlier, has several overlooked warts.

FSLR stock, net income
Click to Enlarge
Source: Source: JYE Financial, unless otherwise indicated

I’d still say First Solar was questionable years back. But now, I have no such hesitation. If you were lucky enough to catch FSLR stock on its bullish swing, I’d pocket all of it. Both from a financial and fundamental perspective, shares have gotten too rich.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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