Will First Solar Continue to Explode?

With shares of First Solar (NASDAQ:FSLR) trading around $50, 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:

T = Trends for a Stock’s Movement

First Solar manufactures and sells solar modules with an advanced thin-film semiconductor technology, and it designs, constructs, and sells solar power systems. The company operates its business in two segments: components segment and systems segment. Its components segment involves the design, manufacture, and sale of solar modules, which convert sunlight into electricity. Its systems business involves the sale of its solar modules, coupled with the engineering, procurement and construction of the solar power plant. As consumers and companies are opting for an improved and cleaner sources of energy, companies like First Solar take center stage. If First Solar can continue to reduce costs and make solar energy more affordable, the company stands to revolutionize the energy sector worldwide.

T = Technicals on the Stock Chart are Strong

First Solar stock has seen an explosive run since reaching lows just last year. The stock has seen a strong bid that has sent the stock to highs for the year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, First Solar is trading above its rising key averages which signal neutral to bullish price action in the near-term.

FSLR

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of First Solar options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

First Solar Options

68.5%

26%

25%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on First Solar’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for First Solar look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

112.69%

137.03%

-55.56%

81.43%

Revenue Growth (Y-O-Y)

51.94%

62.79%

-16.57%

79.69%

Earnings Reaction

-8.93%

-13.77%

-8.92%

21.14%

First Solar has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have been expecting more from First Solar’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has First Solar stock done relative to its peers, SunPower (NASDAQ:SPWR), Suntech Power (NYSE:STP), Trina Solar (NYSE:TSL), and sector?

First Solar

SunPower

Suntech Power

Trina Solar

Sector

Year-to-Date Return

41.59%

173.7%

-64.38%

10.83%

26.47%

First Solar has been a relative performance leader, year-to-date.

Conclusion

First Solar provides a valuable alternative source of energy using solar power to consumers and companies present around the world. The stock has bounced off of lows and has gone on to see a surge in its stock price. Earnings and revenue figures have been growing for most of the last four quarters but investors have been expecting better earnings reports. Relative to its peers and sector, First Solar has been a year-to-date performance leader. Look for First Solar to OUTPERFORM.

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