The never ending presidential campaign finally ended last week with the President receiving a second term. However, time is of the essence due to the "fiscal cliff" risk that continues to rapidly approach.
Additionally, since the election is over, investors have nothing else to focus on and take their minds away from the fiscal cliff, European debt crisis, and falling corporate earnings. There were a few analysts calling for continued downside as all three indexes have fallen below their 200 day moving averages, a sign the long term trend is reversing. Despite these risks and a top heavy stock market, it is imperative that investors keep watch lists available and up to date in order to pick up beaten down stocks once the risks pass. Today, I will be evaluating First Solar (NASDAQ:FSLR) to determine if the stock is a good fit in a portfolio.
First Solar was once a high flying stock that traded well above $100. Today, the stock trades at $24.55. Additionally, shares have fallen 28% year to date. Despite these facts, could First Solar be making a turnaround? At the very least, First Solar has a much better chance of prosperity under a second Obama term than a Romney presidency. Another glimmer of hope came this week from the US International Trade Commission, which voted to raise tariffs on solar panel imports from China. This is expected to help level the playing field and give domestic solar companies a chance. Before I get into forecasts and outlooks, lets take a look at the company's valuation and compare it to some competitors.
First Solar has a market cap of $2.14 billion and a "hold" rating from analysts. Currently, the stock does not have a price to earnings ratio but the company has a forward price to earnings of 6, which means the company is forecasted to see increased earnings next year. Price to sales trades at a 30% discount while price to book is currently 40% off. The company does have a nice cash pile with cash per share at 8.24. This gives the company a stable financial standing, which is reflected through the company's current and quick ratios of 2.4 and 1.8, respectively. Analysts are expecting higher earnings next year but overall growth is still expected to fall 12%. However, earnings growth over the next five years comes in at 12%. Management efficiency ratios are not good as to be expected with no price to earnings. The company shows a return on assets of -11%, return on equity of -18% and return on investment of -14%. It is very important to note that the stock is seeing a short float of 50%. Short sellers are gaining a controlling hand over the stock but at some point, the bears will be forced to cover their shorts, pushing the stock upward. Additionally, the higher the short float, the higher chance of an upward correction. Look for catalysts to help push the stock to the upside.
After looking at First Solar's valuation, we will look at some of the company's competitors such as Trina Solar (NYSE:TSL), Yingli Green Energy (NYSE:YGE), Suntech Power (NYSE:STP) and ReneSola (NYSE:SOL).
Trina Solar is a smaller company with a market cap of $297 million and a "hold" rating from analysts. The stock does not have a price to earnings, nor a forward price to earnings. The stock is trading at a deep discount to sales with the price to sales ratio at 0.18. Price to book value comes in at 0.3 and price to cash at 0.45. Like First Solar, Trina has a lot of cash but that is offset by a large debt load with total debt to equity coming in at 1.27. Earnings growth is forecasted to rise 72% next year and 39% next five years. As you can see, Trina beats First Solar in the earnings growth department but Trina does not have a forward P/E ratio and it is a Chinese-based company, which was hit by the raised tariffs.
Yingli Green Energy has a market cap of $254 million and a "sell" rating from analysts. The company does not have a price to earnings or a forward price to earnings ratio. Price to sales comes in at 0.12, price to book is at 0.34 and price to cash is at 0.3. As you can see, very similar to Trina Solar by way of valuation ratios but Yingli has a lot of debt with the total debt to equity ratio at 4. Earnings are expected to grow 34% next year and 12.5% next five years. Like Trina, Yingli is also a Chinese solar company.
Suntech Power has a market cap of $164 million and a "sell" rating from analysts. The company has no earnings and no forecasted future earnings. Price to sales comes in at a ridiculous 0.06, price to book is at 0.21 and price to cash is at 0.35. Considering Suntech has a cash per share ratio of 2.61, the company has a massive debt load with total debt to equity coming in at 2.84. This is a major concern as they hold more debt than equity. Earnings are expected to rise 34% next year and 50% over the next five years. However, there is still no forward P/E and that debt load is massive. To make matters worse for Suntech, it is based in China.
ReneSola is the smallest of the group with a market cap of $113 million. The stock has a "sell" rating and no earnings. Price to sales comes in at 0.14, price to book at 0.22 and price to cash comes in at 0.36. The stock has total debt to equity of 1.8 and cash per share of 3.6. Debt load is a heavy considering the lack of earnings. Earnings growth comes in at 46% next year and 12.5% next five years. ReneSola is based in China.
As you can see, these four competitors are all at a serious disadvantage to First Solar from a valuation and business environment standpoint. Additionally, First Solar actually has forecasted future earnings unlike any of the competitors and future earnings are expected to increase. As I said earlier, a second Obama term could provide support for First Solar as the President continues his green energy agenda. First Solar will also be able to compete against Chinese rivals as the US trade agency slapped tariffs on competitors.
To be certain, an investment in First Solar must be with the long-term in mind. The company is still trying to fight the high costs associated with the industry and the lack of demand for the expensive green tech.
As the economy recovers, I believe First Solar will prosper and get back to the old days of outperforming.