FSLR and Stock Valuation
It may seem I have a vendetta against FSLR. No, I don’t, but I’m short its stock, and this is a very firm conviction short. When I read this…
Analysts sing First Solar’s praises. “People don’t fully appreciate how [it] is going to change the entire business model,” Citigroup’s Mr. Arcuri says…
Mr. Arcuri’s 12-month price target for First Solar stock is $450, while Mr. Krop’s is $360.
From Globe Investor, May 2008 (by the way they posted it up on the home page again probably due to the fact that FSLR is up so much after earnings release tonight, as in – ‘we told you so’.)
… I can’t help but think of this:
That means there’s a huge market opportunity for companies that can cut through the clutter and actually make life (and business) easier. Who’s positioned best? As we see it, four companies: Nokia (NOK: $54), Nortel Networks (NT: $77), Enron (ENE: $73), and Oracle (ORCL: $74).
FYI, here are live quotes for the above: [[NOK]], [[NT]], [[ENE]], [[ORCL]].
Internet companies were also to change the entire business model. And they did, but not before their stocks returned to a more sane valuation from the 1998-2000 levels.
It’s disgusting how these analysts keep pumping clearly over-valued stocks and never, not once do they mention the valuation. Yes, the company may be good and have good prospects, but is it good enough for a 23 billion$ market cap? Their sales for the year will be $1.2b. Market cap = 23 times gross sales. That’s JDSU all over again.
And I’d like to point out again, insiders sold nearly $1.5bil worth of shares (from options exercised at around $20), with annual sales being less than that.
What a joke!
If I’m missing something obvious, do let me know.
Kat,
The last 3 quarters have seen their cash-flow margins [in addition to all other margins] explode. They are in the 30%+ range. Now earnings on a quarterly basis mean nothing in the longer term, but, Wall St is notoriously short-term.
Those sorts of growth are incredibly bullish. It is not the absolute level of sales, but the growth rate in sales. If the growth rate is ASSUMED to be 20% in 7yrs, which for a nascent industry might be conceivable, then a multiplier of 55 times current earnings is the CORRECT multiplier.
Sounds insane, but mathematically that is correct. The kicker is the ACTUAL growth rate achieved, and that is always unknown. But based on the massive jump in growth, and high oil prices that make solar more attractive, and you start to see where some investors/traders are coming from.
In addition this being an alternative energy play, is the secular trend bullish or bearish? I would argue incredibly bullish in a bearish general market. [on a technical basis]
Holding SHORT positions, can be a very nervous business due to margin calls on the position if you are short stock. If you own a PUT, then, your risk is capped, but leveraged.
Food for thought.
jog on
duc
Duc,
so even according to your ‘aggressive’ calc’s, the stock has to be at around $150 maximum. It’s about double that now.
If you check my earlier posts on FSLR, I don’t disagree with the solar energy itself and I understand it’s in a bull market of its own.
– First Solar uses poisonous Cadmium and Tellurium (Cadmium use is not even allowed in batteries in Europe. Solar panels are excepted at the moment but this may soon change).
– FSLR provides the most expensive energy out of all alternatives and is not viable without government subsidies.
– Their panels efficiency improved by 0.01%. I’m not impressed.
They’re expensive, their product is poisonous and not very efficient. I’m all for solar energy, but not the way FSLR does it.
Shorting FSLR has been my most profitable trade this year but I’m getting tired of the volatility. Once I’m out this time, I may leave it alone 🙂
Kat,
It is certainly true that alternate energy requires subsidies from Government.
However, if the true costs of oil were fairly represented, viz. global environmental damage, and taxed thereon, the competitiveness of alternates would rise.
Also, as alternates scaled up in market share many costs would reduce.
With regards to the toxicity, I have no information/knowledge of this, so am quite willing to accept your points.
My question would be this: how widely accepted within the scientific community is this point of view?
If it is widely argued, with support on both sides of the argument, investors MAY err to the perceived growth rates, until conclusive evidence presents on one side of the argument.
The 55 multiple that posited is a *conservative* value investor valuation [not mine I might add] Thus, if 55 is conservative, what might an aggressive valuation come in at?
As to the volatility…scary stock. I found POT extremely fatiguing, the volatility in POT is less than FSLR, so I can empathise with the position.
Of course, as soon as you go “public” with a position, the pressure mounts. This is an unfortunate consequence as positions tend to be best managed with as little additional pressure as possible, the market provides all the angst ever required.
Anyway, best of luck with the position, hope it’s profitable.
jog on
duc
Hi Duc,
sorry for a late response. Work….
There are other solar companies with better and cleaner technologies than FSLR, so I don’t understand this fascination with this company. Ironically, their solar panels don’t work well in the desert, where it’s really sunny.
I guess what I figured out in the end, that I don’t like the company’s product. That’s all. Add their 95 P/E to the mix, and I see an easy target (maybe mistakenly). Apparently people have been saying all of this a year ago, too, and look at the stock now.
Yes – POT. I shorted that one too this spring. It worked out well but then I found a new pet project (fslr) 🙂
I had many nights of bad sleep thanks to FSLR at first, but I’m more or less immune to its volatility now. Still, I’m going to leave it until maybe their next earnings release. That’s just such easy money!
Good trading 🙂