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First Solar Inc.’s FSLR shares have plunged 28.2% in the year-to-date period, underperforming the Zacks solar industry’s decline of 18.1% as well as the broader Zacks Oil-Energy sector’s growth of 4.7%. It also lagged the S&P 500’s decline of 3.7%.
Image Source: Zacks Investment Research
Other heavyweight solar stocks, such as Canadian Solar CSIQ and Enphase Energy ENPH, also performed poorly on the bourses, as evident from their year-to-date share price loss
of 13.7% and 11.6%, respectively.
With solar photovoltaic (PV) expected to become the foremost renewable electricity source by 2030, as per a report published by the International Energy Agency in October 2024, clean energy investors, particularly those interested in solar, might see this as an opportunity to buy FSLR, considering its relatively lower share price and long-term growth potential.
However, to assert if it would be prudent to add FSLR stock to your portfolio right now or wait a little longer, let’s delve deeper. This should help us understand what led to the stock’s decline and whether there is any risk associated with investing in it.
First Solar has been grappling with several challenges over the past couple of years, including manufacturing issues affecting certain of its Series 7 modules manufactured in 2023 and 2024. This, in turn, has led the company to incur significant warranty charges in recent quarters. Evidently, in the fourth quarter of 2024, it incurred a warranty charge of $56 million. Looking ahead, warranty charges related to Series 7 manufacturing issues are estimated to result in total charges ranging between $56 million and $100 million in the near future. This, in turn, might adversely impact its operational results in the near future and thereby drag down its share price.
Moreover, even if demand for solar modules continues to grow, the rapid expansion of manufacturing capacity undertaken by many module manufacturers in China and certain parts of Southeast Asia, particularly those producing crystalline silicon wafers, cells, and modules, has created and may continue to cause periods of structural imbalance between supply and demand. This, in turn, can have a material impact on FSLR’s operating results, which may have caused its investors to lose interest in the stock lately, as reflected in its share price loss over the year-to-date period, as mentioned above.
Soaring solar energy demand has been encouraging solar product manufacturers like Canadians Solar, Enphase Energy and First Solar to enhance their manufacturing capabilities. In 2024, the company began production of Series 7 modules at its first manufacturing facility in Alabama, increasing its total installed nameplate production capacity across all facilities to approximately 21 GW.
As the largest solar PV manufacturer in the Western Hemisphere, First Solar continues to expand and invest in its manufacturing capacity, aiming to achieve similar sales growth in the coming quarters. Notably, the company is currently in the process of expanding FSLR’s manufacturing capacity by approximately 4 GW, including the construction of its fifth U.S. manufacturing facility, which is expected to commence operations in the second half of 2025. This is expected to significantly bolster First Solar’s operational results in the long run.
In line with this, the Zacks Consensus Estimate for FSLR’s long-term (three to five years) earnings growth rate is pegged at 37.4%.
A quick sneak peek at FSLR’s near-term earnings and sales estimates mirrors similar improvement trends.
The Zacks Consensus Estimate for first-quarter 2025 revenues and earnings reflects a solid improvement of 6.7% and 23.2%, respectively, from the prior-year level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2025 earnings indicates an improvement of 56.2% from the 2024 level, while that for revenues implies a surge of 31.2%. Its 2026 estimates also reflect similar growth trends. However, the downward revision in its earnings estimate suggests investors’ loss of confidence in this stock’s earnings growth capabilities lately.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
In terms of valuation, FSLR’s forward 12-month price-to-sales (P/S) is 2.35X, a premium to its peer group’s average of 0.86X. This suggests that investors may be paying a higher price than the company's expected sales growth compared to that of its peers.
Other industry players like Enphase Energy are also trading at a premium to its peer group, while Canadian Solar is trading at a discount.
Image Source: Zacks Investment Research
Despite the growth prospects offered by FSLR, it poses certain risks that one should consider before investing. Notably, significant production capacity enhancement in China relative to global demand created an oversupply, which, in turn, has visibly dragged down the price of modules and, to some extent, created supply-demand imbalances. Consequently, if FSLR’s competitors lower module prices to or below their manufacturing costs or operate at minimal margins, it could negatively impact First Solar's business.
A prudent investor should wait for a more appropriate time to buy FSLR stock, considering its dismal price performance in the year-to-date period, downward revision in near-term earnings estimates and premium valuation.
However, those who already own this Zacks Rank #3 (Hold) stock may continue to do so, considering its upbeat sales estimates and long-term growth prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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