First Solar Inc (NASDAQ: FSLR) has seen its share price jump over recent days, rising by more than 10% across the last week.
This comes after the business recently announced plans to invest up to $1.2bn in scaling production of American-made, responsibly produced photovoltaic (PV) solar modules, directly supporting the green transition.
First Solar has forecast that this investment will expand its ability to produce American-made solar modules for the US solar market to over 10 gigawatts by 2025.
But is FSLR stock a good investment?
What is First Solar Inc?
First Solar provides PV solar energy solutions in the United States, Japan, France, Canada, India, Australia and beyond. The company designs, manufactures, and sells cadmium telluride solar modules that convert sunlight into electricity.
It serves developers and operators of systems, utilities, independent power producers, commercial and industrial companies, and other system owners.
The company was formerly known as First Solar Holdings, Inc. and changed its name to First Solar, Inc. in 2006. First Solar, Inc. was founded in 1999 and is headquartered in Tempe, Arizona.
How Does First Solar Make Money?
The company has achieved module sales in the United States, Western Europe, India, Latin America, Brazil, Middle East, Japan, Australia, and South East Asia. The business’ offerings include the manufacture and sale of PV solar modules, the development, construction and sale of PV solar power systems and operations and maintenance services.
FSLR Stock Financials
FSLR has a price to sales ratio of 5.51 and a price to book ratio of 2.31. At the time of writing FSLR stock stands at $134.80 and has increased by 52.18% across the year to date. The last 12 months have seen the share price hit a high of $135.20 and a low of $59.60.
The company’s most recent financial results, which covered its second quarter period, showed that its net sales declined from $629.2m to $621.0m over the last 12 months. Additionally, net income declined from $82.4m to $55.8m across the same period. Additionally, the company had cash of more than $1.7bn.
However, despite the evident declines in sales, the company says it has a record backlog of over 44 GWs, extending the horizon for future expected deliveries to 2026.
First Solar does not offer a dividend to shareholders.
FSLR Growth Potential
With the latest news of production scaling in North America already significantly beefing up the company’s capabilities, FSLR estimates that its manufacturing capacity will climb from 8.4GW to 15.8GW between 2021 and 2024.
For the full year 2022 it expects total net sales to reach between $2.55bn to $2.8bn, down from $2.9bn in 2021. However, this guidance, though below net sales figures from last year, was still higher than earlier estimates.
That’s because the company is set to benefit from US government incentives which include the investment of $369bn to reduce the nation’s carbon footprint. With awareness of climate change issues increasing with each year, it is unlikely that this will be the last incentive for the business to benefit from.
Additionally, the US is a key geography for the business, with it having accounted for more than 80% of its net sales in 2021.
With production expansion underway and new incentives for customers in its most significant market, FSLR looks well equipped for growth.
FSLR Investment Risks
Even so, there are risks associated with investing in FSLR stock. While government action has been positive for the stock in this case, it might hamper it in future.
The climate change bill was the work of the Biden Administration, which may have its wings clipped in November’s mid-term elections. Looking to the longer term, a Republican successor to Biden is unlikely to be so keen to enact legislation which so favours green energy.
Indeed, the party has released a road map plan in the runup to the coming elections which actually calls for the expansion of fossil fuel extraction. Additionally, the plan called for a move away from dependence on China for minerals critical to the production of materials for clean energy sources like solar.
With US mineral resources less developed than these Chinese counterparts, such a move could make things difficult for companies like First Solar.
The business also faces risks associated with operating in an increasingly competitive field. The company’s competitors include the likes of:
Cypress Creek Renewables
Canadian Solar Inc (NASDAQ: CSIQ)
Sunrun Inc (NASDAQ: RUN)
NextEra Energy (NYSE: NEE)
Is FSLR Stock a Good Investment?
First Solar seems to have a lot of positives on its side. The business is an industry leader in a space which is almost guaranteed to see increased revenue over the next decade as humankind seeks to transition to cleaner energy sources.
Additionally, the business has more than enough cash in the bank, a strong order book, is expanding its production capabilities and is benefiting from new US legislation which supports solar power.
However, there are still risks too. First Solar could get crowded out of the market by competitors if its technology becomes outdated or overpriced. Additionally, a change in government in the US, the company’s largest market, could create a less friendly environment for solar power.
The 24 analysts covered by Wall Street Journal offer a consensus rating of Overweight for FSLR stock, with an average target price of $129.63.
With all this in mind First Solar looks like a compelling opportunity, though you should take your personal tolerance for risk into account before deciding to invest.