Avoid This Solar Stock

Each week, Motley Fool editors cull a top stock idea from the pitches made on CAPS, The Motley Fool's 180,000-member free investing community. Want your idea considered for this series? Make a compelling pitch on CAPS with a minimum length of 400 words. Want to follow our weekly picks? Subscribe to our RSS feed or follow us on Twitter.

Company First Solar (NAS: FSLR)
Submitted By: TSIF
Member Rating: 99.94
Submitted On: 10/13/2011
Stock Price at Underperform Recommendation: $57.64

Polypore International Profile

Star Rating **
Headquarters Tempe, Arizona
Industry Solar
Market Cap $4.42 billion
Industry Peers ReneSola (NYS: SOL)
Yingli Green Energy (NYS: YGE)
JinkoSolar (NYS: JKS)

Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.

This week's pitch :

I've been pitching many Solar stocks up, (although I'm mostly losing) as they enter uncharted fresh bottoms territory. I think [LDK Solar (NYS: LDK) ], [JA Solar (NAS: JASO) ], and a few others have some potential at the low levels, or at least the risk mitigated somewhat.

First Solar, however, has been so loved by analysts that while it's valuation in the mid-$50's is reasonably "fair", it's valued at 5 to 6X its China based peers. While investments in China have some risks [because of] transparency and government intervention, China has been propping up its solar industry while the US [lets its] decay. US Analysts have been propping up the US Solars even though they can't compete on cost. They can compete somewhat on a service basis, but selling panels short and making some back on the service/installation is a limited business model.

Overall, I think Solar, subsidies or not, is starting to catch on. I see solar panels sprouting on many rooftop, in grid arrays, and on construction signs. Overall, however, the competition is fierce and while US loyalty may help, it's all about the pricing at this point.

[In\ this case, both fundamentally, and certainly technically First Solar, even at 70% off [its 52-week] high, has more to shed. The demand needs to meet capacity and until it does, the lower priced players have the edge. Revenue YoY is down over 35% and income by 65%. Breakeven isn't far away.

Follow this!
Want to follow our weekly picks? Subscribe to our RSS feed or follow us on Twitter.

At the time this article was published The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum