First Solar: Don't Miss The Buying Opportunity

Summary

• FSLR shares have tanked badly even after impressive results last quarter, opening a buying opportunity for investors.
• FSLR will lower its cost per watt due to improving efficiency and capacity utilization as it transitions to a better module manufacturing platform.
• FSLR has managed to overcome the decline in module pricing by lowering its costs aggressively and expanding margins, a trend that will continue going forward.
• FSLR is witnessing strong bookings growth and is capable of improving its backlog further due to 1.8 GW of late-stage bookings opportunities.

I find it surprising to see that First Solar (NASDAQ:FSLR) shares have tanked in the past month and a half even after the company delivered a crushing second quarter in the beginning of August. First Solar had beaten estimates by a wide margin in both counts on the back of robust module demand and project sales. Additionally, the company had also enhanced its earnings and gross margin guidance for the full year.

But, all these positives seem to have had no positive impact on the share price of First Solar. Instead, the negatives in the market such as a weak projection for the solar industry on account of low crude oil prices seem to be weighing on the stock. Additionally, at the end of August, First Solar was downgraded to a Hold rating from a Buy rating by Argus, with the analyst firm citing pricing competition and a weak backlog to weigh on its performance.

But, in my opinion, First Solar remains solid on both these counts and there are ample reasons why investors should consider buying the drop.

First Solar can overcome pricing concerns

The solar energy market is highly-competitive and it is all about reducing costs and enhancing efficiency. The good part is that First Solar has done increasingly well on this front even as solar module costs and pricing have declined in recent years. The following chart illustrates the decline in solar module pricing over the past few years:

Source

The chart given above clearly indicates that there has been a 17% decline in solar module prices in the past couple of years, and this is a trend that is anticipated to continue going forward. In fact, by 2020, Green Tech Media forecasts that solar module pricing will go down another 23% as compared to the end of 2015.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.