Shares of First Solar (NAS: FSLR) hit a new 52-week low on Thursday. Let's look at how it got here and see whether a stormy forecast lies in its future.
How it got here
For First Solar shareholders, the past year has been nothing short of brutal, with the stock losing more than 85% of its value. At the heart of First Solar's problems has been a glut in solar-panel supply, combined with rapidly falling prices for its panels. Despite leading the charge in solar-panel efficiency, First Solar has been unable to ward off the effects of the German government's cutting of solar subsidies by 30% going forward as well as Chinese solar companies such as Suntech Power (NYS: STP) and LDK Solar (NYS: LDK) , which, thanks to subsidies, cheap labor, and low-lending rates in China, are able to undermine First Solar's pricing advantage.
Although First Solar was able to stick to its forecasted EPS guidance of $3.75 to $4.25 in fiscal 2012, it was again forced to reduce its revenue expectations for the year by $200 million since it will be idling production capacity.
How it stacks up
Let's take a look at how First Solar stacks up next to its peers.
This is ugly! It almost looks as if they're all racing to the bottom to see who can get there first! It goes to show you just how badly the sector has performed, with solar panel prices dropping by roughly 50% last year.
Price/ Cash Flow
Trina Solar (NYS: TSL)
Source: Morningstar, N/M = not meaningful.
The sad reality among solar panel producers is that many are trading for fractions of what their book value is, but very few are profitable. First Solar and Trina Solar are among a small handful of companies currently expecting a profit in 2012 with many pundits, including myself, expecting a wave of bankruptcies similar to Solyndra and Energy Conversion Devices to continue to hit the sector.
Now for the real question: What's next for First Solar? That question really depends on whether solar-panel prices bottom out and, when they do, whether First Solar can compete with its Chinese counterparts that undercut its prices in most instances.
Our very own CAPS community gives the company a two-star rating, with 81% of members expecting it to outperform (but only 71% among All-Stars). I am one of those 19% that made a CAPScall of underperform on First Solar and am currently up a whopping 69 points on that pick. Even with China threatening to raise borrowing costs for solar companies, I don't see any pricing relief for solar panels in the near future, nor do I think First Solar will be able to make good on its 2012 EPS forecast. This isn't a falling knife I would attempt to catch.
Craving more input on First Solar? Start by adding it to your free and personalized Watchlist. It's a free service from The Motley Fool to keep you up to date on the stocks you care about most.
At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.Motley Fool newsletter serviceshave recommended buying shares of First Solar. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.