The Upside for FSLR Stock
As the global economy slows, First Solar, Inc. (NASDAQ:FSLR) may become the preferred pick in its sector. The reason is simple: FSLR stock can weather an economic downturn better than many of its rivals. It has a strong balance sheet.
Or at least that is the opinion of Debra Fiakas, the managing director of Crystal Equity Research. In a recent essay, Fiakas compared First Solar to Trina Solar Limited (NYSE:TSL) stock. She argued that investors should opt for resilient stocks amid the global economic slowdown. (Source: “First Solar And Trina: Dueling Ratings,” Alt Energy Stocks, January 26, 2016.)
After all, China is growing at its slowest rate in 25 years. The reduced demand could strain many solar energy firms, particularly those with weak balance sheets.
There could be a thinning of the herd.
“Forget demand measures, growth rates and cash conversion rates,” wrote Fiakas. “If an investor takes a more cautious view given that the rest of the world economy is in greater doubt, it seems prudent to choose the company with the financial strength to withstand slowing growth.” (Source: Ibid.)
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So which is more resilient: FSLR or TSL? Before making her case for FSLR stock, Fiakas first acknowledged the upsides of Trina Solar.
“Investors get a company that delivered 20.0% top-line growth and converted 8.0% of sales into operating cash flow in the last twelve months,” she wrote. “First Solar on the other hand has been having trouble maintaining its top-line and reported only 7.6% top-line growth in the last year.” (Source: Ibid.)
But she maintained that resilience is currently more important than potential. From her perspective, leverage is the deciding factor. First Solar has less than $6.00 of debt for every $1.00 in equity. By contrast, Trina Solar is leveraged 139:1.
As Fiakas aptly concluded, “The duel is decided by the balance sheet.” (Source: Ibid.)