First Solar Stock Too Expensive At $80?

After a 2.6x rise since its low in March, at the current price around $80 per share we believe First Solar stock (NASDAQ: FSLR) has reached its near term potential. The stock is 33% higher than the level it was at before the drop in March, but, in reality, demand and revenues will likely be affected this year. First Solar stock has already rallied from $30 to $80 off the recent bottom compared to the S&P which moved 57%.

First Solar stock is up about 19% from levels seen at the end of 2017, around 2.5 years ago. This rise came due to a 3% increase in FSLR revenues from 2017 to 2019, which translated into a 4% rise in revenue per share (RPS).

Further, its P/S (price-to-sales) multiple saw a decrease from 2.4x in 2017 to 1.9x in 2019, but has risen risen sharply to 2.8x. Therefore, we believe the stock is unlikely to see significant upside after the recent rally, owing to the potential weakness from a recession driven by the Covid outbreak. Our interactive dashboard What Factors Drove 18% Change in First Solar Stock between 2017 and now? has the underlying numbers.

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. First Solar reported a strong Q2 2020, with revenue up to $642 million from $585 million in Q2 2019, while EPS rose to $0.35 from -$0.18 over the same period. However, the rise came primarily due to the sale of the American Kings power project to Goldman Sachs Renewable Power LLC (GSRP). Megawatts shipped rose only marginally from 1376 MW in Q2 2019 to 1467 MW in Q2 2020. But, megawatts shipped in Q1 2020 came in at 1522 MW and Q4 2019 came in at a significantly higher 1688 MW. These numbers confirm the hit to First Solar’s business due to the pandemic and we believe this will reflect in First Solar’s Q3 results in October. It is also likely to accompany a lower Q4 as-well-as 2020 guidance.

Regardless, if there isn’t clear evidence of containment of the virus anytime soon, we believe the stock will see its P/S decline from the current level of 2.8x to around 2.4x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $65.

Want a more balanced portfolio instead? Here’s a top quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams