About First Solar

Oddly enough, there are some commonalities between Walmart and First Solar.

First of all, it wouldn’t be too farfetched to term First Solar as the “Walmart” of the solar industry, given how big the company is relative to its respective peers. 

However, another reason it is more appropriate to associate First Solar and Walmart is due to the direct ties between the two companies.

Namely, one of First Solar’s first investors was none other than John T. Walton, one of the sons of the founder of Walmart, Sam Walton. After investing a considerable sum into the company early on, First Solar has become America’s largest solar manufacturer. 

Interestingly, after passing away, his wife, Christy Walton and his son Lukas Walton have inherited his stake in the company, which is now worth billions. Additionally, although currently not a board member of First Solar, his son has seemingly still been active with the company and its endeavors, as Walton himself is well known for being an advocate for protecting the environment, which can be seen primarily through his role as a board member and as the Environment Program Committee Chair for the Walton Family Foundation.

So, there’s your history lesson for the day.

Please feel free to tip your tour guide on the way out.

Now, onto the future, let’s talk a bit more about what First Solar does, how it makes money, some of its competitors and ultimately whether or not you should consider buying this company’s stock and holding it for the long haul.

First and foremost, First Solar manufactures and sells solar panels as well as utility-scale photovoltaic (PV) power plants and supplemental services related to solar energy. In terms of competition, the company rubs up against the likes of Tesla, oddly enough, as well as more solar panel-focused companies such as China-based Yingli, San Jose-headquartered SunPower, Suntech Power, Trina Solar among many other companies with operations spanning all across the world.

Now that we’ve provided a glimpse into First Solar, how it makes money through its product offerings and the relative competitive landscape, it’s only right that we begin our journey into the company’s financials and ultimately try to figure out whether or not this company’s stock is worth purchasing and holding in the long run.

First Solar’s stock financials

Currently trading at a share price of nearly $164, First Solar has a market capitalization of $17.4 billion, a price-to-earnings (P/E) ratio of 187.35 and does not distribute a regular dividend to its shareholders, at least at the time of this publication.

This company’s stock is overvalued as all get out.

Upon further research in trying to discover why this is the case, we noticed that the company’s stock (according to its five-year stock price chart) experienced a swift rise at around the same time the Biden administration announced its plans to waive solar tariffs along with the Administration’s push for decarbonizing the electricity sector by 2035 through implementation and usage of clean energy technologies.

Regardless of one’s personal views on climate change and increased government spending in this realm, the undisputed fact of the matter is that this sort of legislation and general positive reception from the White House is (and has clearly proven to be) a boon for First Solar’s share price and thus its investors.

Nevertheless, the company’s share price is seriously overvalued at the moment.

According to the company’s balance sheet, First Solar’s executive team manages around $7.4 billion in total assets along with approximately $1.4 billion in total liabilities.

This may sound strange, but this company is ready for a recession.

We say this because its total assets mount over its total liabilities by a considerably wide margin, assuring our team that whatever macroeconomic challenges this company may face in the near-term, they maintain enough cash and additional assets to easily keep its doors open and continue leading the industry.

It also doesn’t hurt to have an Administration that is increasingly fond and friendly towards your company and the industry in which you operate.

Onto the company’s income statement, First Solar’s total revenue throughout the last five years has been rather flat, which isn’t necessarily a bad thing but at the same time, we initially projected this company’s revenue to have a bit more growth behind it. Nevertheless, the company’s total revenue over the past five years has stayed between $2.2 billion and $3 billion.

If not rising, we want companies that have a proven ability to generate consistent revenue and First Solar does just that, even during the tougher years such as 2019 and 2020, which we think speaks a lot to the company maintaining an added layer of being recession proof given its dealings and support from the United States government.

In terms of First Solar’s cash flow statement, the company’s net income has been a bit scattered, perched at almost -$166 million in 2017, $144 million in 2018, -$115 million in 2019, eventually landing at nearly $469 million in 2021.

The business that this company is engaged in requires a lot of readily investable capital.

In other words, there is a lot of upfront investment and furthermore, maintenance that is needed in order to not only grow in the solar industry, but to dominate as First Solar has done so far.

This is likely the primary reason the company reported rather large amounts of negative net income in recent years. However, what’s quite comforting to us is the fact that when it did turn a corner in the positive direction, boy did it turn positive, reaching nearly half of a billion per its latest report, but we have no reservations in assuming that the company’s net income will meet and exceed $500 million in the next year or two.

First Solar’s stock fundamentals

As of this writing, First Solar’s trailing twelve month (TTM) net profit margin is far from optimal, tucked in at 3.75% relative to the industry’s average of just north of 22%.

While we can’t say exactly why the company’s TTM net profit margin is considerably lower than the average of its peers, our initial instinct is to assume that it has to do with growth, or at least, we hope this is the case. Namely, this company has been putting a lot of capital to work and while setting itself up for future success, putting a ding into its net profit margin is sometimes just a virtue of rapid expansion.

Since this is the case combined with the fact that First Solar is a leader in the solar space, we’re not terribly concerned with the company’s future ability to substantially amp up its net profit margin in the coming years and decades.

We just think it’ll take a bit of time.

In terms of the company’s TTM returns on equity, assets and investment, they all lag significantly behind the industry’s average, however we think the same rationale regarding its TTM net profit margin can be reasonably and responsibly applied to its return metrics, therefore, we aren’t losing any sleep over these lackluster figures. 

Should you buy First Solar stock?

This is a tough one.

On one hand, the company is a leader in the industry, has a stellar balance sheet, a proven ability to generate consistent revenue along with a large amount of cash to work with, and of course, it never hurts to garner favor from the United States government. At the same time, as we must think as logical and objective investors, the share price (according to the company’s current P/E ratio) is wildly overvalued, which is likely due to all of the good press it has received coming out of the White House.

Until this company’s stock price comes down below $100 (at least), it is only fair that we give First Solar’s stock a “hold” rating, given that while we don’t think investing in this company would be a bad idea in general, its present valuation is exceedingly high relative to what its shares are worth paying for today.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.