Solar stocks have been crushed over the past year and even the top name, First Solar (FSLR), hasn't been able to escape the carnage. Even though the solar technology is improving, the competition is fierce and the regulatory environment is uncertain. Because of the above mentioned issues, FSLR was forced to cut FY12 guidance in its Q4 press release.
That's the bad news; the good news is that this tough environment should force companies to cut capacity and create a healthier competitive environment. Furthermore, FSLR is one of the stronger solar companies, if not the strongest, and is very undervalued according to all of the valuation metrics. Below is an in depth look at the valuation metrics and stock chart.
Valuation: First Solar's trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the valuation metrics compared to their 5 year averages. First Solar's current P/B ratio is 0.7 and it has averaged 7.4 over the past 5 years with a high of 19 and low of 0.8. First Solar's current P/S ratio is 0.9 and it has averaged 12.6 over the past 5 years with a high of 41.3 and low of 1.1.
Price Target: The consensus price target for the analysts who follow First Solar is $40. That is upside of 51% from today's stock price of $26.33 and suggests that the stock is undervalued at these levels. This also suggests that the stock has significant upside and is an attractive opportunity at these levels.
Forward Valuation: First Solar is currently trading at about $26 a share with analysts expecting EPS of $4.26 next year, an earnings increase of 6% y/y, for a forward P/E ratio of 6.2. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. SunPower (SPWR) is currently trading at about $7 a share with analysts expecting EPS of $0.61 next year for a forward P/E ratio of 11.2.
Amtech Systems (ASYS) is currently trading at about $9 a share with analysts expecting EPS of $0.64 next year for a forward P/E ratio of 13.3. Trina Solar Limited (TSL) is currently trading at about $8 a share with analysts expecting EPS of $0.63 next year for a forward P/E ratio of 12.1. The mean forward P/E of First Solar's competitors is 12.2 which suggests that First Solar is undervalued relative to its publically traded competitors.
Earnings Estimates: First Solar has beat EPS estimates 1 times in the past 4 quarters. The company's EPS figures have come in between -40 cents and 17 cents from consensus estimates or about -23.9% to 14.7% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: First Solar is down 81.7% over the past year, underperforming the S&P 500, which is up 10.7%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $37.03 and below its 200 day moving average, which sits at $68.23.