First Solar (FSLR) Good Future Potential and Undervalued (Q3 2024 Report)

First Solar, Inc. (NASDAQ: FSLR), a leading provider of solar energy solutions, has consistently stood out in the renewable energy sector. With innovative technology and strong financial performance, it continues to draw attention as a potentially undervalued growth stock. This blog delves into why First Solar holds promise for investors, analyzing its current performance, future potential, and associated risks.

1. Overview of First Solar

Founded in 1999 and headquartered in Tempe, Arizona, First Solar specializes in thin-film photovoltaic (PV) solar modules. The company’s unique technology offers higher efficiency and lower costs compared to traditional silicon-based panels. First Solar also provides utility-scale PV power plants, operations, and maintenance services. It benefits from strong tailwinds in global renewable energy demand, driven by government incentives and a shift toward decarbonization.

Read More: Electrovaya (ELVA) Great Growth Potential and Currently Undervalued

2. First Solar Financial Performance

In the third quarter of 2024, First Solar showcased steady growth in its financial performance. Quarterly revenue rose to $887.67 million, a 10.81% increase compared to Q3 2023 revenue of $801.09 million, driven by strong demand for its solar panels and services. The company’s quarterly EPS also improved significantly, reaching $2.91, up 16.4% from $2.50 in Q3 2023.

For the trailing twelve months (TTM), revenue reached $3.85 billion, marking a 21.77% growth from the prior year’s $3.16 billion. EPS (TTM) grew dramatically to $11.61, a staggering 162.15% increase from $4.43 in the same period a year ago. This growth reflects the company’s operational efficiency and market positioning.

However, First Solar's free cash flow (FCF) per share (TTM) remains negative at -$591.34, compared to -$530.40 in Q3 2023. The negative FCF is attributed to substantial capital expenditures aimed at expanding manufacturing capacity to meet rising demand.

This financial performance highlights First Solar’s robust growth trajectory and its continued investment in long-term capacity expansion.

3. First Solar Future Financial Performance

Looking forward, First Solar’s growth trajectory appears strong, supported by its expanding production capabilities and a robust order book. Analysts project the company’s revenue to reach $5.66 billion in 2025, representing a 32% year-over-year increase. Alongside this revenue growth, EPS for 2025 is forecasted at $21.30, an impressive 58% increase compared to 2024.

Given the current stock price, First Solar's forward P/E ratio for 2025 is expected to be just 9.7, which underscores its undervaluation relative to its earnings growth potential. The company is set to benefit significantly from favorable policies like the U.S. Inflation Reduction Act and increasing global demand for renewable energy solutions, positioning it well for sustained financial growth.

4. FSLR Stock Price Performance and Valuation

At a current share price of $207.50, First Solar’s stock has experienced a 29.46% increase over the past year, outperforming many of its renewable energy peers. In the last five years, FSLR stock has increased by 288%, outperforming the S&P 500, which increased by 92% during the same period. Despite this price increases, the stock’s valuation remains attractive.

FSLR Outperform S&P 500 2019-2024

First Solar's price-to-sales (P/S) ratio is 5.78, while its trailing price-to-earnings (P/E) ratio stands at 17.88, reflecting a balanced valuation relative to its historical performance. More notably, the forward P/E ratio is 10.76, suggesting significant undervaluation considering the company’s expected earnings growth in the coming years.

These metrics highlight First Solar’s strong growth potential at a reasonable price, bolstered by its solid financial position and strategic advantages in the expanding renewable energy market.

5. First Solar Growth Potential

The global renewable energy market is expected to grow at a compound annual growth rate (CAGR) of over 8% through 2030, providing a massive opportunity for First Solar. Key growth drivers include:

1. Technological Edge: First Solar’s thin-film modules offer efficiency and durability advantages in hot, humid environments.
2. Policy Support: U.S. and international climate policies, including tax incentives for solar energy, underpin demand.
3. Capacity Expansion: The company plans to add new manufacturing facilities, increasing production capacity by over 50% by 2026.

These factors position First Solar to capitalize on the accelerating transition to clean energy globally.

6. Risks to Consider

While First Solar is an attractive investment, it is not without risks. Key challenges include:

• Political and Regulatory Risks: Changes in government policies or trade tariffs could impact profitability.
• Competition: Intense competition from traditional and emerging solar manufacturers may pressure margins.
• Short-Term Volatility: The solar sector is cyclical, and First Solar’s stock may experience fluctuations tied to macroeconomic trends or supply chain disruptions.

Despite these risks, the company's strong financial position and unique market position mitigate the downside.

Read More: Bowhead Specialty Holdings (BOW) Strong Results and Undervalued Opportunity (Q3 2024 Earnings)

Conclusion

First Solar’s combination of innovative technology, robust financials, and a favorable market backdrop makes it a compelling investment opportunity. Its undervaluation, relative to future earnings potential, suggests room for stock price appreciation. While risks exist, they are outweighed by the company’s growth drivers and strategic initiatives. For long-term investors seeking exposure to the renewable energy sector, First Solar remains a strong buy.