Is The Sun Shining on First Solar?

Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The renewable energy market is a good bet for the future (for the long-term, rather than the short). People worldwide are trying to move towards cleaner sources of fuel, and companies that enter the playing field now are likely to benefit from the coveted first-mover advantages. There are various sources of renewable energy, but unfortunately solar hasn’t done too well on Wall Street, and most companies in this field have seen their stock take quite a beating

First Solar (NASDAQ: FSLR) was once a company whose stock traded at higher than $100; now the stock trades at around $24. The company expects to see an increase in earnings next year as indicated by the forward Price to Earnings ratio of 6. The company has a nice cash balance, with cash per share at 8.24. First Solar is also financially sound, as reflected in the current ratio of 2.4 and quick ratio of 1.8. The company shows a return on assets of -11%, a return on equity of -18% and a return on investment of -14%.

Changing Business Environment

The outcome of the Presidential Election in favor of Barack Obama is only expected to do First Solar good. Another more recent problem the company has been facing is the glut in supply in the industry. This has been exacerbated by dumping from Chinese players, which is almost leading to an oversupply in the market. However, while this has been a cause for concern for the company recently, the future looks better. Recently, the US International Trade Commission voted to increase tariffs on solar panels from China. This is naturally expected to have a ripple effect on the Chinese players in the industry.

Trina Solar (NYSE: TSL) is a company that has lost nearly 50% of its value in the past 6 months. The Chinese solar panel maker estimates shipments in the third quarter between 375 and 385 megawatts, down from previous guidance of 450 to 480 megawatts. It also expects gross margin will be between break-even and 1.5%, below the prior guidance for gains in the mid-single digits.

Like First Solar, Trina has a lot of cash that is offset by a large debt load, with total debt to equity coming in at 1.27. Earnings growth is forecasted to rise 72% next year and 39% in the next five years. The company is also set to undergo a restructuring in a bid to reduce costs. The company has plans of trimming operating expenses. Trina also revealed plans to lay-off an undisclosed number of employees in the future.

ReneSola (NYSE: SOL) is a company that’s one of the runt of the litter as far as the industry goes, with a market cap of just $113 million. ReneSola solar PV modules can be found in projects ranging in size from a few kilowatts to multi-megawatts in markets around the world, including the United States, Germany, Italy, Belgium, Greece, Spain, China, and Australia. The company is also doing well in emerging markets, particularly in India where it participated in the sixth Renewable Energy India 2012 Expo. The company’s focus is on improving its operating efficiencies, generating material cost savings through its vertically-integrated production structure, and the introduction of innovative products like the power-conserving microinverter Replus. The stock has total debt to equity of 1.8 and cash per share of 3.6.

Why First Solar?

First Solar is expected to record significant gains as the business environment changes thanks to the increase in tariffs. While this will stem the supply of Chinese imports and help address a problem for the company, they have done fairly well for themselves to be in a superior position compared to competitors. The company has managed to do a good job of keeping its debt low when compared to its Chinese counterparts. The new tariffs will just add to Chinese manufacturers’ problems.

Another reason to keep a hold of the stock is the fact that it is seeing a short float of 50%. Eventually, the bears will have to cover their shorts and thus push the stock upwards. This will be quite an interesting one to watch.

Dig Deeper

Investors and bystanders alike have been shocked by First Solar's precipitous drop over the last twelve months, and now the stakes have never been higher for the company. Are they done for good, or ready for a rebound?  If you’re looking for The Motley Fool’s recommendation on how to approach investing in First Solar, along with continuing updates and guidance on the company whenever news breaks, the Fool has created a brand new report that details every must know side of this stock. To get started, just click here now.

ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus