With shares of First Solar (NASDAQ:FSLR) trading at around $55.01, is FSLR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
First Solar is one of the most interesting stories on the planet. There are many arguments that can be made from the bullish and bearish sides. Prior to getting to positives and negatives, let's see what the analysts think. Most of them seem to be on the fence, but there are more bears than bulls: 2 Buy, 17 Hold, 8 Sell. It should also be noted that there is a 33.4 percent short position on the stock, which indicates that there are many non-believers.
As far as positives go, last quarter's revenue increased year-over-year, margins are solid, cash flow is strong, and increased solar modular sales helped First Solar swing to a profit for the quarter compared to a loss for the same quarter last year. First Solar has now delivered a profit four quarters in a row. In addition to that, operating expenses were down to $107.1 million from $533 million. FY2013 guidance is for revenue between $3.8 billion and $4.0 billion, which would indicate continued growth. First Solar also commented that the second half of the year should be stronger than the first half of the year.
One big negative is that competitors are making cheaper solar panels due to a decline in the price of polysilicon. Another potential negative is that revenue has declined on a sequential basis. First Solar will layoff 150 North American employees in the coming weeks. This is after laying off 2,000 employees last year. Factory expansions have also been canceled. It's evident that First Solar is most focused on the bottom line. This isn't necessarily a negative for shareholders, but it does indicate that growth might not come as easy as many people think.
When it comes to company culture, it's average at First Solar. According to Glassdoor.com, employees have rated their employer a 3.3 of 5, and 52 percent of employees would recommend the company to a friend. An above average 71 percent of employees approve of CEO James A. Hughes.
The chart below compared fundamentals for First Solar, SunPower Corporation (NASDAQ:SPWR), and SolarCity Corp. (SCTY).
| FSLR | SPWR | SCTY | |
| Trailing P/E | 11.33 | N/A | N/A |
| Forward P/E | 16.02 | 25.64 | N/A |
| Profit Margin | 11.37% | -12.98% | -73.19% |
| ROE | 11.98% | -31.00% | -32.92% |
| Operating Cash Flow | 844.80M | 316.47M | 146.12M |
| Dividend Yield | N/A | N/A | N/A |
| Short Position | 33.40% | 29.90% | 16.60% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
The industry is on fire right now. Despite First Solar’s impressive run, it has actually underperformed its peers.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| FSLR | 41.08% | 74.20% | 293.5% | -51.14% |
| SPWR | 118.1% | 293.6% | 335.4% | 95.75% |
| SCTY | 146.9% | 321.5% | 11.76% | 11.76% |
At $55.01, First Solar is trading well above its averages.
| 50-Day SMA | 40.60 |
| 200-Day SMA | 31.91 |
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio is stronger than the industry average of 0.40.
| Debt-To-Equity | Cash | Long-Term Debt | |
| FSLR | 0.15 | 1.01B | 562.66M |
| SPWR | 0.80 | 505.59M | 754.22M |
| SCTY | 0.90 | 127.29M | 282.15M |
E = Earnings Have Weakened
Earnings have weakened on an annual basis, but revenue has consistently improved on an annual basis.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 1,246 | 2,066 | 2,564 | 2,766 | 3,369 |
| Diluted EPS ($) | 4.24 | 7.53 | 7.68 | -0.45 | -1.11 |
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When we look at the last quarter on a year-over-year basis, we see a substantial increase in revenue and earnings. However, there were significant declines in revenue and earnings on a sequential basis.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in millions | 497.05 | 957.33 | 839.15 | 1,075.01 | 755.21 |
| Diluted EPS ($) | -5.20 | 1.27 | 1.00 | 1.74 | 0.66 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Might Support the Industry
There is an oversupply of solar panels, a pricing war exists, and solar panels are still too expensive. If alternative energy options become cheaper, then solar energy will be pushed to the side. Many people feel as though solar will take over and it will be the only option, but that's not the case. This will be a long and hard-fought battle for the industry. And competitors from other industries will always be present.
Conclusion
The stock has serious momentum right now, and the trend is always your friend – until it stabs you in the back. In the near term, First Solar is an OUTPERFORM. There could be a lot more room to run. However, there will likely be a steep correction in the stock price over the next one to two years due to declining demand.
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