by Timothy Lutts, editor Cabot Stock of the Month
Back in 2007, First Solar (FSLR)
rose over 1000% before crashing. Today, it is profitable and cheap,
analysts are raising their estimates, and the long-term potential is
very positive as the cost per watt of solar power falls year after year.
When the solar market inevitably booms, First Solar -- -- our
latest Stock of the Month -- is in position to be the market leader.
First Solar came public in December 2006 at 26, and soared all the way
to a high of 317 in May of 2008. The base that was built following that
crash—and which centered on 140— didn't hold, and the stock crashed
again in 2011 and 2012.
[Related -First Solar, Inc. (FSLR) Q3 Earnings Preview: International Growth, Cost Improvements In Focus]
It's been less than a year since the
second crash, so it's possible the stock needs more time. On the other
hand, it's been five years since the first crash, and that's the one
that took the stock out of the limelight.
any case, the stock has built a new uptrend! It's spent January
consolidating its recent gains, while its 50-day moving average caught
up. Today, there's support at 25.
Getting to the fundamental
story, First Solar is the king of the solar cell business, making its
photovoltaic cells from cadmium telluride (CdTe). Founded in 1999, it's
grown revenues every year of its life, and there's no reason to believe
that trend won't continue.
[Related -Options Light Up At First Solar, Inc. (FSLR) As Shares Zip Higher]
The story with earnings, however, has
been slightly different. The company turned profitable in 2006, and
grew earnings steadily as global demand boomed; particularly
instrumental was Germany, where government incentives spurred
Then Chinese companies ramped up production,
leading to global excess capacity, while the mortgage and housing
collapse, combined with the Eurozone troubles, depressed demand, leading
First Solar to shutter its Germany factory, shut down four production
lines in Malaysia, refocus its business on utility-scale products and
appoint a new CEO!
In other words, the company has been through
the wringer! But after posting losses in the last quarter of 2011 and
the first quarter if 2012, First Solar is making profits again, and
analysts have recently been raising their estimates (calling for $4 per
share in 2013).
Furthermore, the long-term potential for the
company remains unchanged; as the cost per watt of solar power falls
year after year (just as the cost of silicon-powered computing capacity
has fallen for decades and keeps falling), the market will boom, and
First Solar is in position to be the market leader. I recommend buying