Can This Made-in-America Company Keep Winning?

With the Democrats clinching the Senate, our proprietary Trackstar database shows a surge in search activity for stocks that will benefit from the victory.

Specifically, solar stocks have been on the move, and within that group, First Solar (FSLR), a US-based solar panel company. 

In fact, it’s garnered more searches than Morgan Stanley, FedEx, and General Motors. 

That’s pretty impressive for a company with a $16.8 billion market cap.

Shares of FSLR have been on fire in 2022. But can this run continue?

First Solar’s Business

First Solar is one of the only publicly traded U.S.-based solar technology companies. 

The firm provides eco-efficient solar modules globally. It uses advanced thin-film photovoltaic modules, enabling high-performance and low-carbon alternatives to conventional crystalline silicon.

First Solar operates through two segments: its modules business and other. Its modules business segment is involved in designing, manufacturing, and selling CdTe solar modules, which convert sunlight into electricity. 

After benefiting from the Inflation Reduction Act, FSLR has made approximately $1.5 billion of new investments since Q2 2022. It will invest in a new factory in the Southeast that will begin operations in 2025. In addition, it plans to expand production in its Ohio facility. 

Analysts’ key metrics to measure FSLR include bookings, production, shipments, manufacturing performance, manufacturing capacity, and technology.

Financials

FSLR saw inconsistent revenue growth over the last six years as demand for solar waxed and waned with tax credits and energy prices.

While the company is expanding its reach and is positioned for success in the future, this has yet to show up on its financial statements. 

FSLR has 12-month trailing revenues of $2.5 billion. The company is on firm financial grounding, with $1.9 billion in total cash and $313 million in debt. It has an amazing current ratio of 4x. 

Valuation

FSLR has a P/E GAAP ratio of 170x. 

While stocks in the solar sector have high P/E multiples, First Solar’s is the highest among its competitors. For example, Enphase Energy (ENPH) has a P/E GAAP ratio of 140x, SolarEdge Technologies (SEDG) 142x, Sunrun (RUN) 90x, and SunPower (SPWR) 43x. 

Given the political momentum and overall strength of ESG, investors are willing to pay a premium for solar stocks. 

FSLR trades at a price-to-sales ratio of 6.3x, notably lower than ENPH at 19.5x, but not as low as SEDG at 5.6x, RUN at 2.9x, and SPWR at 2.1x.

Only ENPH’s price-to-cash-flow ratio of 67.4x is lower than FSLR’s 142x. 

Profitability

FSLR runs a net income margin of 3.7%. The market leader, ENPH, is at 14.6%. However, FSLR is competitive with the other companies in its category. SEDG is at 4.1%, RUN is at 3.3%, and SPWR is at 3.8%. 

First Solar’s EBIT margin of -0.13% is better than RUN’s and SPWR’s. But it trails ENPH’s 17.6% and SEDG’s 7.7%. 

Despite massive R&D investments, FSLR is generating cash from its operations. At $112.6 million, it tops nearly all its competition, except for ENPH at $588.2 million. 

Growth

FLSR has had negative revenue growth YoY, despite its shares climbing by more than 72% YTD. Meanwhile, the other companies in its category have seen explosive YoY revenue growth. 

ENPH has had revenue growth of 63.5%, SEDG 56.8%, RUN 43.6%, and SPWR 58.3%. 

Our Opinion 5/10

The Inflation Reduction Act has helped solar stocks gain momentum despite a challenging market. 

FSLR is U.S.-based, a benefit as it will look to tap into the IRA. 

But buying shares at this level is risky. 

The stock is trading at high P/E multiples, and its latest quarterly earnings missed revenues and EPS expectations. 

While the future may be bright for FSLR, we’d rather buy in the $100-$110 range than here above $150.