What’s Next for FSLR Stock
As the years pass, First Solar, Inc. (NASDAQ:FSLR) is widening its lead over other solar companies. FSLR stock is up more than 13% in the last 12 months, which is particularly stunning considering the NASDAQ Composite actually declined by 2.2% in the same period.
Contrast that with another solar energy provider, say, SunEdison Inc. The company bills itself as the largest renewable energy provider in the world, yet that slogan is grossly outdated. First Solar is worth more than the combined market capitalization of SunEdison, SolarCity Corporation, and SunPower Corporation.
I would imagine the executives over at SunEdison might find that a little embarrassing…that is if they weren’t too preoccupied by their own dirty laundry. There are rumors trickling down the grapevine that SunEdison is holed up in a boardroom with its creditors. Word is they’re negotiating the terms of a possible bankruptcy. (Source: “SunEdison engages in DIP talks with second lien holders,” Debtwire, March 22, 2016.)
We have no way of knowing if those rumors are true or not, but the firm’s history hasn’t been encouraging. Its share price fell from $32.00 to less than $2.00 in six months. And it delayed releasing its financial results for the fourth quarter of 2015—twice.
In any case, SunEdison’s woes only highlight how spectacular First Solar’s performance has been. Remember that there was a solar tax credit under debate last year. If it had expired, then all the solar companies would have suffered enormous damage. That’s why investors were fleeing the industry.
Worse still, natural gas prices had fallen sharply between 2014 and 2015. People were less inclined to try a renewable source of energy when their conventional sources were so cheap. So you would have expected First Solar’s business to fall apart under those circumstances, right? Well, you’d have been wrong.
Although there was a slight dip, the firm produced a stunning $164.1 million in net income last quarter. It was a testament to First Solar’s resilience, especially since most of its competitors haven’t yet managed to turn a profit (I’m looking at you SolarCity!). How is First Solar doing it?
In a nutshell, First Solar is profitable because it has kept its financing simple and efficient, which provided greater insulation in the slump. By contrast, SunEdison was buying up everything in sight and it complicated its financing structure.
First Solar also took pains to keep its expansion plans conservative, so as not to overextend itself. By contrast, SolarCity kept growing sideways into different states, forcing the company to deal with many different regulatory environments. SCTY stock took a blow when Nevada effectively voted it out of the state. (Source: “Following Nevada PUC’s Decision to Punish Rooftop Solar Customers, SolarCity Forced to Eliminate More than 550 Jobs in Nevada,” SolarCity Corporation web site, January 6, 2016.)
A commission in Nevada made rooftop solar panels more expensive for customers by lowering the amount utility companies had to pay for solar power being fed onto the grid. First Solar doesn’t have those kinds of problems because it builds a full power plant and signs wholesale contracts for the energy it generates.
It is a more predictable business model, so it’s no surprise that First Solar is crushing the competition. As the gap widens, I expect investors who are generally bullish on solar power to shift their holdings towards FSLR stock. The influx of capital could send the stock skyrocketing as early as next quarter.