First Solar (FSLR): More Competition Means More Multiple Compression

A storm of insider sales, political risk in Germany and Europe, and potential supply constraints have driven First Solar (FSLR)) down from a high of $317 last month to under $250. Many analysts dismiss these issues, but increased competition may be the most pressing concern (WSJ):

With increased competition, First Solar’s cost advantages are disappearing:

“We believe the company is vulnerable to new thin-film entrants and a potentially large drop in manufacturing costs for traditional solar makers,” wrote Kaufman Bros. analyst Theodore O’Neill in a May 27 note. The analyst started coverage of the stock with a “hold” rating, saying First Solar’s valuation is “deserved” in light of its strong financial performance but that market-share gains would be limited.

FSLR may not have the thin-film market to itself much longer:

Applied Materials Inc., the semiconductor-equipment maker, has begun aggressively selling equipment for making thin-film panels and has announced billions of dollars worth of contracts from companies that are looking to compete with First Solar.

If not Applied Materials (AMAT), then someone else will make it work:

“It isn’t yet known if the Applied-equipped solar makers can match the production cost of First Solar. There’s a chance it may take years to perfect,” Mr. O’Neill said. “But given the efforts being made by equipment makers around the world, it would appear to be only a matter of when, not if, others can make thin-film solar work.”

Eventually, increased competition could be positive for the entire solar sector, but this will likely take a while:

Indeed, any pressure could be short-lived if lower prices spur more sales for everyone and yield better economies of scale. Cheaper solar panels would help achieve grid parity, a milestone that industry players and watchers widely believe will spur demand for solar panels. That day could also be closer at hand, thanks to rising prices for natural gas, which fuels some power plants and could inflate grid prices.

Grid parity might also make investing in solar stocks such as First Solar a more comfortable undertaking. Currently, solar stocks are regularly tipped and tossed by news of oil-price changes and government moves to set subsidies to encourage the use of solar energy.

With First Solar still trading at an astronomical 30x revenue, the short-term risks would appear to outweigh the reward.

See Also:
Wall St. Loves First Solar (FSLR) Despite Price and Competition–Analysts Last To Know?
First Solar (FSLR): Competitive and Technology Risks, Stock Fairly Priced (FSLR)
First Solar (FSLR) Collapse: Deutsche Bank Says Buying Opportunity

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