First Solar, Revisited

As those following along know, I got back into First Solar Inc. (NASDAQ: FSLR) last month. I first bought into First Solar in July of last year, selling my position in December, for a nice 36% gain, albeit on a very small position. Due to a recent selloff I’ve gotten back in.

I wrote about First Solar last July: Why I Think First Solar Has Upside! Have a look. The basics haven’t changed as far as I’m concerned. So why did I sell First Solar when I did? And why did the price drop so much a few months later?

I sold in December because I’d had a nice run on my position, and I set an automatic limit order to sell, because I felt at the time that if it went up much more, it would be time to take profit and wait for a pullback. I don’t recall exactly where I placed the limit order, perhaps around $62ish. What I didn’t expect was the government to significantly extend the Investment Tax Credit (ITC) out of nowhere. When that was announced I was automatically sold out of my position at pretty much the low of the day, at $63.52. I wasn’t crying too hard, as a 36% gain in 5 months isn’t shabby at all, though eventually the stock traded as high as $74.29 a few months later. I love limit orders, but I wasn’t feeling super great about this one with First Solar in the mid $70’s.

But then again, had I not had it in place, who knows if I would have sold at all? I might not have had the opportunity to use those same funds in the recent harsh downturn in price. I think I’d have sold in the high 60’s, but that’s easy to say looking back at lines on a chart.

On April 27th First Solar reported earnings of $1.66 a share, which handily beat analyst’s expectations of 0.93 cents. Revenue, however, came in under expectations. First Solar peaked at over $74 around a month before earnings, but had fallen to around $61 – $62 when they reported. Also announced was that CEO James Hughes will be stepping down on July 1st, to be replaced by CFO Mark Widmar. James Hughes was apparently hired to whip the company’s technology into shape, which he has undoubtedly done when you look at the recent efficiency improvements in their solar panels. Mark Widmar’s job will be to take those improvements and turn First Solar into an even better money making machine. Though further efficiency improvements will certainly be important for First Solar going forward.

Mr. Market didn’t like ANY of this. Over the next few weeks First Solar dropped much further, as low as $46.67, on May 19th. And who do you think was buying? Ok… no surprise if you’re awake while reading this: I was.

This is what I love about the stock market. At some point in March FSLR was worth $74.29. Almost exactly 2 months later, it’s worth $46.67. Can this be rationally explained by investors carefully analyzing First Solar’s future earnings power? A careful consideration of how the company will deploy its resources effect shareholder value? Discounted cash flow analysis? Give me a break. The stock market is as much emotion, feeling, and instinct as anything else, at least in the short term. That’s my current opinion anyway. I don’t see anything changing it anytime soon. Have I discovered one of the secrets to wealth on Wall Street? Buy good companies when others are selling in panic? Is it really that simple? I guess I’ll find out if that’s the case here.

But if you pull back and look at the last 3 or 4 years of price action in First Solar, you see that this is nothing new, not by far. It has large swings up, and large swings down, and back up, that generally lead the stock higher. So following the pattern, I should sell around $74, just to be safe. But I think this is such a good company, so should I sell, especially since the government is trying to encourage this technology? And what about 8point3 Energy Partners (NASDAQ: CAFD)? This YieldCo, another profitable holding of mine, keeps feeding First Solar money, and should continue to buy more and more of FSLR’s projects. First Solar is a very profitable company with a GREAT balance sheet, but it’s being treated like garbage by investors. Keep it up; I’m set to buy more at $42.75!

As always, feel free to look at my portfolio and see how I’m doing. Usually I own or plan to own stock in many of the companies I write about. Please READ MY DISCLIAMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

 

2 comments on “First Solar, Revisited

  1. KeninDenver says:

    Thanks Michael. Your post reminded me of the ‘efficient market hypothesis’, described as:

    The efficient market hypothesis (EMH) is an investment theory that states it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.

    Your article describes how false the EMH is.

    Like you, I think FSLR is a company with huge potential, and a great buy in the 40s. I enjoy your posts!

    Liked by 1 person

  2. Thanks for the comment. Love to hear from people.

    The efficient market hypothesis always struck me as a flawed concept. Sure lots of things are efficient in a technical sense. ETF’s usually closely reflect the underlying value of their components, etc… but for individual stocks, forget about it. And if there IS a market, SOMEBODY has to be beating it, otherwise EVERYBODY would gain 8.63% one year, and EVERYBODY would gain 5.79% the next, or whatever. If there are no winners, then there are no losers. I know from past experience that the market creates losers.

    I also know that I have strong emotions when I look at my stocks going up or down. I try to listen to them to the extent that they are useful, understanding that others are having them too. I think a lot of successful investing, for me, will come from understanding emotion, letting it inform my decision making, but not control it.

    Like

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