3 Reasons to Buy First Solar StockSep 28, 2022
Every week, we’ve been trying to bring you long-term narratives that we’re seeing emerge in the economy.
This is because this time of year is usually the sleepiest few weeks in the market before we start the big sprint to December. And frankly with the CPI looming over the market, now is the time to go more long-term than ever.
So in today's post, we're going to use this time to add to our green energy portfolio and discuss who we think will win the latest green energy goldrush set off by the Inflation Reduction Act.
But green energy doesn't work unless we have scalable sources of renewable power. The holy grail of that race is going to be solar for a lot of reasons.
Solar presents a lot of storage issues but at an industrial scale, those can get mitigated. That's why we're excited to join with the rest of the market and place our bet on First Solar ($FSLR).
For shorter-term investors, picking First Solar may seem pretty lame. The stock is already up 100% this year and buying now represents us buying in at 5x 2023 revenue. That's pretty expensive for inflationary times. But we're not buying First Solar for the short term, we're locking in our position now to get in on the ground floor of what we see will be 5+ years of solid gains.
If First Solar can capitalize on US investment and supercharge their development and production, their sales can absolutely skyrocket over the next 3 years.
The bear market isn’t entirely gone yet folks, boring is still beautiful in this market. Let’s take a quick look at the details below 👇
First Solar Overview:
Let's keep this quick, First Solar is a manufacturer of solar panels and Photovoltaic Power Plants (PV plants) for industrial clients.
They're a B2B play in a space that's been surprisingly crowded on the consumer side.
B2B plays rock because they can scale a little better, score stronger deals, and have way less pain to deal with since everyone working with their products are "experts".
Being Elon Musk is cool, but being the dull nerd who sells huge solar contracts to other dull nerds is money.
First Solar has been pretty weighed down by supply chain issues, R&D, and the overall inflationary environment. This is why it popped off as soon as the Inflation Reduction Act announced it would provide enormous incentives for green energy manufacturers who base their factories in the US. This is a big deal for FSLR and their Ohio factory.
So the stock went up 65% and has been a little sideways ever since. That brings them to a pretty spicy P/E ratio -- so why on earth would we invest now?
First Solar Thesis:
Checking in on their pipeline and product roadmap, FSLR is looking to expand production with a billion-dollar factory and a 135-million-dollar investment in improving their development across the board.
Solar is difficult and expensive, but ultimately a simple manufacturing process. First Solar is in a position to go full-Tesla on this market.
Their margins can potentially explode across 2023, hitting consistent and expanding profitability in 2024. The B2B angle makes this simpler and cheaper to pull off.
So for us, that's enough to initiate a position now with the hype dying down and buy pressure easing off the stock.
While this pick is likely to undergo serious volatility in the short run, we're long-term investors and view this as a decade-plus pick.
So if you're mirroring our investment, just know this is one of those picks that you stick in your portfolio and don't look at on a day-to-day basis -- otherwise it'll drive you crazy.
First Solar Outlook:
But anyway, First Solar is in just the right market position to really win this new Green Tech race set off by the Inflation Reduction Act.
They're in the middle of a strong product development cycle that can get supercharged by cheap money coming in from the government.
It's utilities and large infrastructure companies who win the most in environments like this and that's why we're really excited to see First Solar pull off forward-looking exponential growth here.
Price Target: $161 (21% upside)
Current Price: $133
Target Date: Q3 2023
Risk/Reward: Medium/ Medium-high
Market Cap: $14B
Dividend Yield: N/A