Will First Solar Continue to Burn Investors?

With shares of First Solar (NASDAQ:FSLR) trading at around $26.87, is FSLR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

First Solar 3First Solar got crushed yesterday on the back of disappointing Q4 earnings and weak guidance. Was this precipitous drop justifiable? Or was it more about panic? Let’s take a look at the facts before forming an opinion.

Q4 revenue came in at $1.08 billion versus an expectation of $1.30 billion. That’s not good, but it’s not the end of the world either, especially considering it was a big improvement over Q4 revenue last year, which was $660.35 million. Q4 EPS came in at $1.74, which was also a significant improvement over last year’s Q4 EPS number of -$4.74.

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Looking ahead, First Solar expects Q1 revenue to come in between $650 and $750 million. Analysts had expected $867 million. First Solar expects Q1 EPS to come in between $0.70 and $0.90. Analysts were expecting $0.89. Not great news. Furthermore, the gross margin fell to 27.3 percent from 28.4 percent year-over-year. After the call, and based on this news, Bank of America Corporation’s (NYSE:BAC) Joe Osha dropped his price target to $25 from $35.

There are a lot of factors working against First Solar at the moment. The most important factor is that the company relies heavily on government subsidies, and the government is heading for budget cuts. That’s not a good combination for First Solar as it will lead to reduced capacity. Another big negative factor is that the company’s cost-per-watt lead has faded. First Solar must find a way to reduce costs in order to improve its current situation. This might be a challenge, but it’s definitely a realistic possibility.

At the moment, First Solar has poor margins, an ROE of -17.74 percent, and the stock has a short position of 36.50 percent. There are also many analysts on the SELL side for First Solar.

First Solar looks like a disaster, but sometimes news can play tricks on your mind. The best indicator is often numbers. Therefore, let’s take a look at some important numbers prior to forming an opinion on this stock.