The current stock price for First Solar (FSLR) is coming off the recent 52-week low of over $11 in early June of 2012. The current market cap is only slightly less than the current enterprise of $1.4 billion. The beta is close to 1.5. while the 5-year expected PEG ratio, the price to sales ratio and price to book ratio are all significantly below one. These numbers depict an opportune time to invest in a slightly undervalued company controlling liquidity and costs, with the potential to grow in the long term, through potential dips.
Sales growth has decreased by over 12 percent from the previous year, while it has decreased by over 24 percent from the previous quarter. Return on equity, operating margin and net margin especially, have all decreased significantly over the past three quarters. Both the current ratio and quick ratio have been decreasing for the past three quarters, although the ratios are close to 2.5 and slightly less than two, respectively. First Solar's debt to equity ratio has been increasing for the past three quarters.
First Solar's price is around three times earnings; this ratio is less than half of the industry average. The net profit margin is in-line with the industry average. First Solar's return on equity currently exceeds the industry average. First Solar's gross margin is almost 40 percent, while institutional ownership is almost 70 percent. Both the debt to equity ratio and long-term debt to equity ratio are both below 0.30. These financials suggest that debt and cash flow are not an issue for First Solar although they are currently being exploited in present day operations. Earnings and growth seem to be issues of concern for First Solar so far in 2012.
Even for aggressive investors or long-term projections, First Solar should be viewed as a substantially risky investment at this point in time. Its stock price has decreased substantially for some time now as Frist Solar and the solar industry at large are experiencing significant struggles in the present day. There are fleeting opportunities available in Europe, Asia and emerging markets as well.
The demand for solar opportunities in China is projected to double by the end of 2012. The demand for solar power in China is expected to exceed that of Italy and Germany by the end of 2013. First Solar has a unique product and superior production efficiencies in comparison to the industry on the whole. First Solar intends to capitalize on this by improving production efficiencies by nearly 4 percent in the near future. First Solar has a free cash flow yield exceeding 4 percent, while its 5-year expected sales growth is projected at nearly 63 percent.
Although sales have stalled recently, Frist Solar improved sales from $ 2 billion in 2009 to $2.7 billion in 2011. Demand in Germany has increased unexpectedly, compelling First Solar to increase production at this plant to full capacity to October until it is closed down by the end of 2012. First Solar is revamping its production operations in order to improve efficiencies and mitigate expenses in order to better position itself for growth on a global scale. There is an opportunity here for aggressive investors to capitalize on short-term trades from First Solar's expected ebbs and flows throughout 2012.
There was a significant increase in its stock price early in June of 2012 when First Solar's potential role in two Australian projects was announced. First Solar will be contributing in the design and construction of two utility power projects in Australia that will account for over 150 megawatts. Frist Solar will also be working with Intermolecular (IMI) in order to improve its own production efficiencies. Improving production efficiencies will help First Solar better compete with the majority of the industry that utilizes crystalline silicon opposed to photovoltaic film production.
Competing on a utility scale and in regions with high temperatures have been perceived as significant impediments to First Solar's growth. Success in the Australian endeavors will help improve the perception of First Solar's capabilities as a viable provider in the industry. Australia is a region with growing demand for solar energy, similar to other large markets around the world. First Solar will benefit greatly by increasing its existing international portfolio in order to outshine competitors like Trina Solar (TSL), SunPower (SPWR) and Yingli (YGE).
Saudi Arabia is also interested in solar development in the near future around 2014. Saudi Arabia is interested in generating 41 gigawatts of solar power production in the country for around $109 billion. Creating a viable solar market in Saudi Arabia is a significant opportunity for First Solar and other competitors in the industry. This is a reasonable alternative to produce power opposed to the more expensive methods utilizing oil. Saudi Arabia has more than enough sunlight and available land to host a lucrative opportunity for solar production.
Investing in solar energy is becoming more appealing to many markets around the world as the price for production drops further below the cost of creating power from oil. Trading disputes between China and the U.S. have contributed to the reduction in the price of solar production, in turn lowering the stock price of many solar manufacturers like First Solar. First Solar has also been experiencing financing issues domestically and has cut the construction of plants in multiple regions around the world. It will still be a few years until the cultivation of solar is truly scalable and lucrative for producers in the industry.
First Solar is currently focused on revamping its production operations in order to make solar energy more affordable for the end-user. It has the most cost effective operation in the industry, but the industry at large is currently struggling. Political agendas and global economic issues are significant obstacles for the solar energy industry at this point in time. Restructuring its operations and pursuing large scale projects are the current plans for weathering the storm. Competition has been increasing from international parties, while First Solar has failed to capitalize on the growing demands in the U.S. Investors and shareholders should be wary at this time. It is advisable to hold until First Solar's next earnings report for more concrete projections about its future into 2013 and beyond.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.