We recently compiled a list of the 7 Most Undervalued Solar Stocks to Buy According to Analysts. In this article, we are going to take a look at where First Solar (NASDAQ:FSLR) stands against the other undervalued solar stocks.
Global Solar Energy Market Poised for Explosive Growth
According to a report by Precedence Research, the global solar energy systems market is valued at $255.40 billion in 2024 and is projected to grow to $1.14 trillion by 2034 at a CAGR of 16.4%. The market has undergone significant transformation in recent years, driven by the increasing global focus on sustainable and renewable energy sources. Governments worldwide have implemented policies and incentives, such as tax credits, subsidies, and net metering programs, which are driving growth in the solar panel market.
However, the market faces challenges related to cost and grid integration, as excess solar energy must be either transmitted back into the grid or stored in batteries. Integrating solar energy into existing energy networks is technically complex and requires infrastructure to handle two-way energy flows, while the costs of establishing large-scale energy storage systems are high, limiting the economic sustainability of solar energy systems.
The North American region is experiencing growth fueled by technological advancements, environmental concerns, supportive policies, and increasing consumer demand for clean and sustainable energy. The United States is a leading player in the North American solar energy market, with substantial growth in residential and utility solar installations. In 2022, the country added 14.1 GWh of energy storage to the electrical grid, marking a 34% year-over-year increase.
However, the Asia Pacific region is currently leading the market and is poised for continued growth, driven by governments and industries striving to meet renewable energy targets. India, aiming for 450 GW of renewable capacity by 2030, is expected to be a key driver of market growth in the region. Notably, the International Energy Agency predicts that solar power in India will surpass coal’s share in the country’s power-generating mix within the next 20 years.
Economic Benefits Driving the Growth in the Solar Industry
Abigail Ross Hopper, President of the Solar Energy Industries Association, expressed her excitement about the growth prospects of the solar industry. According to her projections, the industry is expected to grow by 52% in the near future, doubling its size. This growth is driven by increasing demand for low-energy prices, particularly in states like Texas and Florida, which are not typically known for their environmental politics but are eager to reduce their energy costs. Hopper emphasized that the solar industry’s growth is not limited to California, which currently has the most solar installations in the country, but is also gaining traction in other states.
Hopper acknowledged the backlash against Environmental, Social, and Governance (ESG) initiatives, including the green transition, but emphasized that the focus on solar energy is driven by its economic benefits, particularly lower prices. She noted that customers, including utilities, corporations, and homeowners, are increasingly turning to solar energy as a way to reduce their energy costs.
As the world continues to transition towards a more sustainable and renewable energy future, the solar energy market is poised for rapid growth and expansion. With that in context, let’s take a look at the 7 most undervalued solar stocks to buy, according to analysts.
Our Methodology
To compile our list of the 7 most undervalued solar stocks to buy according to analysts, we used the Finviz and Yahoo stock screeners to find solar companies cheaper than the S&P 500 Index as of October 4 (forward P/E of 23 as per WSJ). We then narrowed our choices to 7 stocks according to analyst upside potential. We also included their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their upside potential as of October 4.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A solar panel farm with an orange sky illuminating the vast landscape.
First Solar (NASDAQ:FSLR)
Upside Potential as of October 4: 22.16%
Number of Hedge Fund Investors: 66
Forward P/E Ratio as of October 4: 17.42
First Solar (NASDAQ:FSLR) is a leading manufacturer of thin-film photovoltaic solar panels, catering to large-scale solar power projects worldwide with manufacturing facilities in Vietnam and Malaysia.
In Q2, First Solar’s (NASDAQ:FSLR) revenue saw a significant 24.7% increase to $1.01 billion, with EBITDA surging 95% year-over-year to $470 million, driven by higher selling prices and an improved gross margin of 49.4%. The company’s robust order book, extending through 2030, is fueled by strong demand for its products.
First Solar (NASDAQ:FSLR) is currently in the process of patenting its innovative TOPCon technology, which enhances the efficiency of its solar panels. A successful patent could unlock a new revenue stream through royalties, bolstering the company’s financial position and providing a potential long-term growth catalyst. Additionally, the company has completed an upgrade at its Ohio facility and is building new sites in Louisiana and Alabama, which will nearly double its production capacity and enable it to better meet the growing demand for solar energy.
First Solar (NASDAQ:FSLR) has an attractive valuation, with a price-to-earnings ratio of 17.42, which is 26.47% below the sector median of 23.68. Analysts forecast the company’s earnings to grow by 54.78% this year. First Solar’s (NASDAQ:FSLR) stock is owned by 66 hedge funds, with a total value of $1.68 billion as of the second quarter.
Overall FSLR ranks 6th on our list of the most undervalued solar stocks to buy according to analysts. While we acknowledge the potential of FSLR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FSLR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.