Shares of First Solar (NASDAQ:FSLR) plummeted by 33% in the past three months. What is driving down the company's value? Here are three factors driving down First Solar's value.
Changing this year's guidance
First Solar also adjusted its 2014 annual guidance, in which the outlook for this year's sales was slightly revised down by almost 3% to an average of $3.75 billion.
The table below summarizes the company's changes to its outlook for this year compared to the previous outlook and to 2013's results.
Source of data First Solar's website
Despite the lower sales projections, the company still expects, on average, slightly higher operating profits and wider profit margins compared to previous estimates. On a yearly scale, however, the company is still expected to have lower profit margins compared to last year. The changes in this industry are likely to keep bringing down the profit margins for First Solar.
The Energy Information Administration still projects the total solar power demand to jump by 25% in 2015 to 0.519 quadrillion Btu compared to 2014. Most of this growth will come from the electric power sector. So this industry is still expected to grow fast, but the share of First Solar could come down as the competition in this industry keeps intensifying: Solar Energy Industries Association reported of a 9% drop in the national average PV installed system price in the second quarter, year over year. The lower price is likely to reduce solar companies' profit margins.
Falling profit margins
As stated above, the stronger competition is reducing the profitability of First Solar. In the past several quarters the company presented lower profitability, as presented herein.
Source of data Google finance
Oil and Solar stocks
One of the main macro changes that contributed to the weakness of the solar industry including some of First Solar's peers such as SunPower (NASDAQ:SPWR) was the recent plunge in oil prices. The oil market has loosened in the past several weeks on account of expected slower global growth, which means slower growth rate in the demand for oil, higher output in the U.S. and OPEC maintaining its quota.
Since solar energy is considered an alternative energy source to oil, the latest fall in oil prices to the mid 60's may have driven investors away from solar stocks; they may think that the growth in solar energy will curb down if oil prices were to remain at these low levels.
The chart below shows the performance of First Solar's stock and shares of United States Oil (NYSEARCA:USO) in the past few years.
Source of data Google finance
As you can see, there isn't a clear and consistent relation between oil prices and First Solar's stock but in the past year they two data sets have had a very weak but positive linear correlation. This only shows that the market's reaction to the changes in oil prices isn't automatic for First Solar's shareholders. But the recent plunge in oil prices may have been too much for solar enthusiasts to hold on to First Solar.
First Solar continues to expand its operations. But the recent developments in the oil market along with stronger competition in the solar industry are likely to keep curbing down the company's stock. For more see: Will the Sun Continue to Shine on Solar Power?
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