As if the news coming out of the solar industry has not been bad enough lately, now we learn that First Solar (NASDAQ:FSLR) CEO Rob Gillette is out and Michael Ahern is in as the interim CEO at the company. The stock got clobbered once again on the surprising announcement.
The next day, First Solar reported EPS of $2.25 per share, $0.42 below estimates. First Solar's gross margin fell from 40.3% to 37.7%, while total operating expenses rose 41.9% on higher research, development, selling, and general and administration expenses.
On the balance sheet, cash fell by roughly $100 million dollars and long term-debt rose by $350 million. First Solar also lowered its guidance for 2012 from $10.39 per share to a range of $6.50-$7.50 per share. Frankly, I would be shocked if it is able to meet that slashed guidance.
The troubles at First Solar should come as no surprise to anyone. I have had First Solar on the "short list" in my weekly newsletter since May 27th of this year. The stock was $121.37 per share at that time. First Solar currently is trading around $45 per share.
I first exposed First Solar along with Solyndra in an article that I wrote for the Phoenix Business Journal back in April of this year.
I am not writing this article to rub it in or gloat - that was then, this is now. Now that First Solar is a $45 dollar stock, should we be buyers of the shares?
Let's begin with the big picture. The Solar Index was created back in early 2008. At that time, an exchange-traded fund with the ticker symbol TAN was created. TAN went public at $25.00 per share and now trades at $3.30 per share. TAN is down a gut-wrenching 87% since its inception! During that same period of time, the S&P 500 is only down 3%! Ouch, that fact does not give me a lot of confidence in the future of solar stocks.
Remember Evergreen Solar (ESLR)? Try looking up the symbol. You will not find it anymore. It closed its doors earlier this year and left the state of Massachusetts holding the bag on millions of dollars in guaranteed loans. This was once a $300 dollar stock!
Akeena Solar, now Westinghouse Solar (OTCPK:WEST), has gone from $67 per share to under $1.00 per share. How about Sunpower (SPWRA)? Sunpower hit a high of $164 back in 2007 and now trades at just under $10 per share. Sunpower just got $1.2 billion of Dept. of Energy money to build a solar power plant in the booming metropolis of Tonapah, Nevada-which is just over the hill from Winnemucca.
How about new technologies being developed in the solar industry that will help speed up parity on the energy grid? Let's go to the Silicon Valley where a state-of-the-art plant now sits vacant. The plant was built by Solyndra, which had a revolutionary cylindrical technology that did not need expensive silicon. Solyndra was expected to be one of the hottest IPOs of the year - instead it closed its doors and laid everyone off earlier this year.
Now let's look at the ugly picture that First Solar has painted over the years:
I got so mad at trying to find performance numbers for stocks that I invented my own app. I call it my lie detector. A quick glance at the track record of First Solar is enough to make an investor sick. The stock is down another 70.6% over the last twelve months. First Solar was a $317 dollar stock back in 2008. First Solar is now a $46.00 stock. The stock is now down 85.5% from its peak.
What about First Solar as a value proposition? If we assume that First Solar does indeed make $7.00 per share next year, it could be argued that with the stock trading at less than 7X forward earnings, it is a stunning bargain here. Do you really trust those EPS estimates, given First Solar's track record? These numbers come from a CEO that has only been on the job for one day. I know, Michael Ahern is one of the founders of the company and he knows the company well, but I still don't have much faith in the numbers.
Solyndra has proven that we cannot compete with the heavily subsidized Chinese Solar manufacturers. Solar cells and solar panels have become nothing more than a thin-margin commodity. Given these facts, where is the growth at First Solar going to come from?
When I make a decision to buy, sell, hold, or short a stock, I weigh all of the evidence available to me. When I weigh the facts on First Solar, the question is not whether or not to buy the stock at this level, but rather - how does this stock survive?
Disclosure: I am short FSLR.