First Solar (NASDAQ:FSLR) has doubled in value over the last six months. It started trading today at $32/share.
But the rest of the industry hasn't followed suit. The two main Solar ETFs, KWT and TAN, are down for the period. Even SunPower (NASDAQ:SPWR), which remains publicly traded despite being controlled by Total, a French oil company, has barely budget, up just 9%.
Investors may be left confused. Either the FSLR run-up is a head fake - for six months - and the stock is going to tank, or FSLR is different from its peers.
The answer is, it's different.
The first reason has to do with its basic technology. First Solar has never trafficked in polysilicon. It uses a different technology, cadmium-telluride, which it says re-uses material that is waste from other mining processes. FSLR has perfected a technology for turning material into thin, flexible solar components and has proven it can scale this technology to the 1 GW/year range. It has built multiple factories, and it controls its intellectual property.
By contrast most solar panel makers use a polysilicon technology derived from semiconductor production. There is minimal differentiation among the players, thus intense price competition. And most of the most efficient players are in China, which with its low labor costs can beat any American company easily.
The second thing that makes FSLR different is its business model. That is something that has changed over the last year, and probably explains the run-up.
During 2012 FSLR has worked to become a project developer. It finds land, it builds projects using its systems, then it sells the projects on to power companies. Wash, rinse, repeat. With solar power still costing more to produce, on average, than other grid power, selling systems remains the industry's chief challenge. FSLR does this by having utilities trade "green power certificates," which are sold to large customers who want, for whatever reason, to lower their carbon footprints. It's not a real carbon trading system, it's just a virtual one, but it's the start of one and, the industry feels, important.
First Solar is delivering solid results because it can sell its panels, and it's pushing the technology it has to lower costs toward the 50 cent/watt level needed for true competition with other forms of grid energy. Grid parity has already been achieved in some high-cost states, notably Hawaii and California, and it will spread over time to the rest of the country. This will gradually make sales to businesses and property owners easier.
The turnaround from its business model has been costly but worthwhile. Over the last two quarters FSLR has delivered about $200 million, $2.27/share, to the bottom line. If it achieves this for the next two quarters - and there are few reasons to believe it can't - that's about $9/share, which for a $32 stock is pretty cheap. The company also has its debt-to-assets level down below 10%.
When more on Wall Street start believing this turnaround story FSLR is going to fly higher.