First Solar Stock: Buy For 30% Gains?

FSLR: First Solar logo
First Solar

Despite rising more than 2x from its low in March 2020, at the current price near $70 per share, we believe First Solar stock (NASDAQ: FSLR) has strong upside potential. First Solar stock has risen from $33 to $69 off the recent bottom, a little more than the S&P which increased by around 80% from its lows. Further, the stock is up almost 1.3x from the level it was at before the pandemic. However, we believe that First Solar stock could regain its April 2021 high of $90, rising almost 30% from its current level, driven by expectations of continuing demand growth, and strong Q1 2021 earnings. Our dashboard What Factors Drove 64% Change In First Solar Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The stock price rise since 2018-end came due to a 21% rise in revenue from $2.24 billion in FY 2018 to $2.71 billion in FY 2020. Despite a marginal 1% rise in the outstanding share count, RPS (revenue-per-share) rose 19% from $21.46 in FY 2018 to $25.59 in FY 2020.

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First Solar’s P/S (price-to-sales) multiple rose from 2x in 2018 to 3.9x by 2020 end, but has since dropped to 2.7x. We believe that the company’s P/S ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns in early 2020 affected solar module and systems demand, as installing solar energy was not a priority for people. However, with conditions improving solar demand has recovered strongly.  This is evident from First Solar’s strong Q1 2021 earnings, where revenue jumped to $803 million vs $532 million for the same period in FY 2020, a jump of 1.5x. However, rising COGS and operating expenses saw operating margins fall to 8.3% from 14.3%. This led to EPS dropping to $0.71 from $1.01 over this period. Operating income (excluding gains on sale of business) jumped to $102 million, up significantly from the $2 million in Q1 2020. Despite a tax expense of $46 million (against a tax benefit of $89 million in Q1 2020), EPS jumped to $1.98, up from $0.86.

Further, demand growth is expected to continue in the medium term, driving demand for First Solar’s products even higher. Additionally, with the lockdowns being lifted and manufacturing capacity rising back to pre-pandemic levels, we believe the company will see additional revenue and margin growth. These factors will raise investor expectations further, driving up the company’s P/S multiple. We believe that First Solar’s stock can rise around 30% from current levels, to regain its recent highs of $90.

While First Solar stock may be undervalued, it is helpful to know how its peers stack up. First Solar Stock Comparison With Peers summarizes how First Solar compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.


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