First Solar (FSLR) has been on a tear since its November 2006 IPO at $20–until recently, that is. The clear leader in the nascent solar power race soared past $300 last month. But a rash of potentially bad news in recent weeks has spooked investors, sending the stock down to–at this writing–$236.
Is it the CEO dumping half his stock or a potential European Union ban on key ingredient cadmium worrying analysts? Yes, those are two issues. And then there is competition (increasing rapidly), concern about changes to subsidies in Germany, and, most importantly, valuation. The Toledo Blade:
[A]nalysts are concerned about competition and the already lofty price of the stock, whose value is nearly equal to that of General Motors Corp. and Ford Motor Co. combined.
Ford (F) and GM are irrelevant benchmarks (it’s not hard to be worth more than Ford and GM these days), but valuation is indeed a major FSLR concern. FSLR is trading at 30-times revenue (and 90+ times trailing earnings), a vertiginous valuation for a manufacturing company. When a company’s growth is exploding and there are no concerns on the horizon, this valuation is defensible. When you add increasing competition, supply issues, and aggressive insider selling, however, it’s no wonder investors are cooling on the stock.
Just because the market has become more bearish on FSLR, of course, doesn’t mean Wall Street has. Most analysts think it’s getting ready to blast up to to $350. Yahoo Finance:
Is this just another case where the analysts are the last to know?