I will admit to sometimes turning sour on it myself. But how do you argue with its numbers? And at its current price its PE of 17.22 does not look out of line.
Much of the skepticism over First Solar involves its technology. While all the other big players focus on polysilicon, which delivers a firm, flat cell with an efficiency of about 15%, First Solar keeps pushing Cadmium Telluride, a thin film technology that is said to have an absolute “speed limit” of 16.5% efficiency. Worry warts also worry about the availability of cadmium and tellurium.
Yet First Solar keeps moving forward, claiming now to have broken that “speed limit” with a CdT cell boasting 17.3% efficiency. The market's response to this is a yawn – the stock is flat today.
When I last wrote about the company back in June, I emphasized that its advantage is the ability to scale out its technology into factories capable of producing 1 Gwatt of power per year.
That doesn't sound like a lot, against a base load of 380 Gwatts for the U.S. grid, but it's a different kind of power than what we've seen before. It makes the urban grid more robust, it hits a peak on the hottest days when grid load is highest, and every gallon of oil it saves goes right into reducing demand from other power sources.
First Solar is the first U.S. company to succeed in solar energy, and it won't be the last. Energy is the biggest industry there is – by a lot. At some point U.S. energy companies are going to see the profit here and look to buy in.
First Solar might then be a good buyout candidate. It has good old boy credentials aplenty, given that founder and former CEO Michael Ahearn, now a VC himself, came out of the Walton (as in Wal-Mart (NYSE:WMT)) interests.
Ahearn's own disinterest in current solar start-ups may be one big reason for investor skepticism about First Solar's prospects. Another reason for weakness might be that the estate of John Walton, whose $150 million helped bankroll the company before his 2005 death, has been selling its stake, putting steady selling pressure on the stock.
Most arguments against the business, then, have little to do with the business. First Solar has a market niche that remains unique, it has manufacturing expertise that guarantees leadership within that niche, it continues to invest in its technology, and that technology has real advantages over its Chinese rivals - like you can bend it.
You can buy First Solar confidently on weakness and know your money will be safe for at least 3-5 years. I don't know of any other renewable energy investment you can say that about.