A Look at First Solar’s Analyst Day
First Solar, Inc. (NASDAQ:FSLR) saw a 45.53% midday rally as the company gave a presentation on its analyst day. The company began by talking about demand and long-term margins, including a wide array of new products. At this point the stock was trading higher by 6%, and then rose to 8% when it began to discuss its cost/watt being cut drastically over the next four years.
Moving forward, the stock jumped to gains of 24% when the company issued full-year guidance that crushed expectations by more than 25%. Finally, the stock popped into an even higher 40% level when it issued long-term shipment guidance that showed an improvement in its overall business.
In five years First Solar, Inc. (NASDAQ:FSLR) has lost 85% of its value, and most of these losses have been a result of inconsistencies and weakened demand. However, it appears as though last year’s surprising quarter was the start of a turnaround. The company now is expecting long-term improvements and short-term performance that is above and beyond all of Wall Street’s expectations.
So what should we make of this massive rally? Is it a buying opportunity or just a short squeeze? Well, First Solar, Inc. (NASDAQ:FSLR) is among the most shorted stocks in the market with one-third of its float being short. However, this was not a technical rally or an overreaction. This rally was caused by a very detailed look into the company’s fundamentals and the demand shifts that are occurring within the industry. As a result, there is little doubt in my mind that First Solar, Inc. (NASDAQ:FSLR) is a buy.
It’s a buy because of its valuation/growth. This is a company that is now expecting more than 20% top-line growth and significant margin improvements. Yet is trading with a price/sales of just 0.70 and at just 10.0 times next year’s earnings. Therefore, it is a deep value stock, and strangely enough, this doesn’t even compare with some of the value that is scattered throughout the solar space.
The Deeply Undervalued Solar Space
While First Solar, Inc. (NASDAQ:FSLR) was the company that provided the catalyst, there were a number of other solar stocks that rallied as a response. Here are a few of the top performers:
| SunPower (NASDAQ: SPWR) | 17% |
|---|---|
| LDK Solar (NYSE:LDK) | 23.36% |
| JinkoSolar (NYSE:JKS) | 16.0% |
| JA Solar Holdings (NASDAQ:JASO) | 19.51% |
Now, here is what the above chart does not show: Each of these companies have grown rapidly over the last five years, but have fallen due to macro issues and speculation of an even weaker global economy. Therefore, all of these stocks are priced for an absolute worst case scenario. For most of the companies above, revenue has increased at least 50% yet their stocks have declined to a great extent. You can see below.
| Company | Market Cap | Price/Sales | Five-Year Stock Performance |
|---|---|---|---|
| SunPower | $1.36 billion | 0.48 | (87.4%) |
| LDK Solar | $167.90 million | 0.12 | (96%) |
| JinkoSolar | $128 million | 0.14 | (47.3%) |
| JA Solar | $170 million | 0.13 | (96%) |
As you can see, the amount of value lost in this space is extraordinary, and the level of value being presented is just as remarkable. First Solar just gave us the first indication that the solar market is improving, and now because of how far this industry has fallen, there is a great amount of upside being presented. In fact, the only concern would be that First Solar’s guidance is not reflective of the industry, and that its move to construction is responsible for the improvements. However, First Solar is in fact still a solar company, and to see the level of progress it touts, there would have to be substantial macro improvements.
