There was a time when First Solar (NASDAQ:FSLR) was seen as an industry giant head and shoulders above the rest. These days however, FSLR stock’s fire power is being questioned off and on the price chart. But are conditions really as bad as they seem? Let me explain
The company is one that many investors associate with leading the solar industry in the same way Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL) control their markets. And on Wednesday, deal news evoked that type of formidable wherewithal.
The Trump Administration announced approval of First Solar’s Desert Quartzite project in southern California. It’s a big deal in more than one way. Specifically, the project is a sprawling solar farm of more than 2,700 acres capable of generating 450-megawatts. That’s enough electricity for roughly 117,000 homes. At the same time, the project has won favor among environmentalists due to First Solar’s design aimed at preserving the area’s fragile ecosystem.
Yet FSLR stock finished Wednesday’s session off by nearly 7%. So, what went wrong?
On the same day POTUS approved the Desert Quartzite project, investment house Barclays slashed its price target on the stock from $66 to $49. Further, the firm reduced shares to underweight and warned the company is “in trouble.”
Behind the bearish revision, analyst Moses Sutton noted the firm’s deep dive into thousands of solar projects revealed First Solar’s once formidable market share of 20% has dropped to 4%. They noted the company’s recent decision to abandon its engineering, procurement and construction or EPC business hinted of the weakness.
The good news is the First Solar’s warning may not be as bad as it appears on the surface.
For one, the solar industry isn’t in trouble according to Barclays. Furthermore, today’s difficulties at First Solar could be an exaggerated rough patch. The analyst admits there’s still reason to believe the company can capture 10% of the solar market going forward. Lastly, Mr. Sutton acknowledges FSLR has done a solid job of executing, improving costs and showing resiliency in a challenging market.
FSLR Stock Monthly Chart
Source: Charts by TradingView
In the first half of 2019, First Solar shares looked well on their way to completing a right shoulder within a bullish inverted head and shoulders bottoming pattern formed over the last several years. Yet, rather than breakout above neckline resistance, FSLR stock proceeded to rollover and into a bearish flag set against the 50% retracement level of the right shoulder. It’s troubling.
Still, maybe it’s not all its cracked up to be either?
This strategist’s interpretation is the bear flag could be a head fake similar to Barclay’s “in trouble” warning, which also maintained more than its share of positives for the stock. In fact, at this point in time, I’d recommend monitoring the stock for a buy on a price move through pattern and Fibonacci resistance if shares cross $60.
With stochastics on the cusp of a bullish crossover, the combined effort should prove powerful, reaffirm the larger pattern and lead to an eventual breakout of the neckline. To contain downside exposure, if First Solar stock break’s bear flag support and $50 level, all bets are off the table. Shares should be exited as the technical picture shifts clearly in favor of lower FSLR prices.
Market Maker Edge: On a move through $60 in First Solar stock gain long delta exposure with the June $67.50 / $70 bull call spread, which offers well-positioned leverage with limited and reduced risk.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.