If you owned First Solar (NASDAQ:FSLR) stock at the start of 2011 my condolences.
From its all-time high of $168/share, achieved last February, the company has fallen like a stone to the present level of about $38. That's about $12 billion in market cap wiped out, during a year when the Dow was actually rising.
So why should anyone be interested now? The company has canned its top management, and its Cadmium Telluride (CdTe) technology can't match the grid without subsidies, which are drying up.
Bears will note that General Electric (NYSE:GE) is getting into CdTe production, many analysts have thrown in the towel on the stock, and the news is filled with stories of a continuing shakeout in the sector.
Maybe. But let's try and build a bullish case anyway:
In terms of American solar companies First Solar is the last comic standing. Most of its American competitors are basically penny stocks. The other publicly-traded solar outfit on the NASDAQ, Sunpower (NASDAQ:SPWR), is now owned mostly by Total (NYSE:TOT), the French petroleum company.
First Solar insists it can raise the yield on its CdTe technology to 17.3% in time. That's almost twice as much as current production cells. It insists this isn't a “hero” device but one that can be produced using its current technology.
First Solar is pushing production cost efficiency, not raw yield. That means moving production to Malaysia and Vietnam. (Most of its production is currently Malaysian.) It said on its last conference callit hopes to get production costs down to 50 cents/watt by 2015.
First Solar is on the “right side of the trade,” finally. It is moving into selling utility-scaled solar power plants, The power companies sell this “green power” at a premium and generate a profit. Until we reach grid parity this is the right side of the trade to be on.
GE's appearance in the space, with a new CdTe plant in Colorado, may in fact be good news. It would seem to validate the technology, and if things get really tough GE might be the white knight FSLR investors need to get whole.
Solar power is like any tech manufacturing business. It's not an easy dollar. Until grid parity is reached (it's a moving target depending on where you live) you need a subsidy, a salesman, or a halo to make money on it, and the big profits will be in the channel, making that argument.
First Solar is trying to be around at the point where the market turns, and it still seems to have the business savvy necessary to get there. If you buy right now you're getting a Ford-like PE, a reasonable growth rates and expanding margins.
It's a gamble but may be one worth taking.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.