Has First Solar Bottomed?

Despite a 66% rise since the March low of this year, at the current price around $50 per share we believe First Solar stock (NASDAQ: FSLR) has reached its near term potential. First Solar stock has rallied from $30 to $50 off its recent bottom compared to the S&P which moved 33%. On the way down, First Solar stock had taken a beating of around 50% going from $60 to $30, a rate much higher than the S&P 500, which fell by about 34%. Further, the stock is still down around 25% from its early 2018 levels, two years ago.

First Solar stock has partially reached the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. This seems to make it fully valued as, in reality, demand and revenues will likely be lower than last year.

First Solar stock fell over the last 2 years despite a 4% rise in revenue, that translated into a 3% rise in revenue per share, as the outstanding share count rose by around 1%. Further, the company has seen an improvement in EPS over this period, going from $-1.59 in 2017 to $-1.09 in 2019.

While the company has seen slow revenue growth over recent years, its P/S multiple has seen a significant decrease. Further, we believe the stock is unlikely to see significant upside despite the recent rally, owing to the potential weakness from a recession driven by the Covid outbreak. Our interactive dashboard What Factors Drove -25% Change in First Solar Stock between 2017 and now? has the underlying numbers.

First Solar’s P/S multiple changed from 2.4x in 2017 to 1.9x in 2019. While the company’s P/S is now 1.7x, there is further downside when the current P/S is compared to levels seen in the past years: P/S of 1.5x at the end of 2015 and 1.2x as recent as late 2016.

So what’s the likely trigger and timing for this downside?

The global spread of Coronavirus has meant there is much lower demand for new solar panels and module installations right now, as these are just not a priority for people at the moment. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe First Solar’s Q2 results in July will confirm the hit to its revenue. It is also likely to accompany a lower Q3 as-well-as 2020 guidance.

If there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/S decline from the current level of 1.7x to around 1.2x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $35.

For more insights into how the Covid-19 crisis could impact First Solar’s solar peer SunPower, view our interactive dashboard How Low Can SunPower Stock Go?.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here

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