Tuesday, February 24, 2009

First Solar Reporting After the Bell

I have published previous articles about shorting First Solar starting in April 2008 as the stock hovered near $300/share. At that time, general economic, stock market, and solar business prospects were much better than they were now.

Thanks to weaknesses unique to FSLR (and now, general market weakness) my short worked out very well - I shorted in the high $200's and rode it down past $150 before covering. I haven't had any position in the stock for a while.

FSLR reports earnings after the bell today, and i have not initiated any position prior to the announcement (nor do I plan to initiate any position after). However, I love me some schadenfreude... I mean, First Solar is still way overvalued compared to its fundamentals. The P/E is sky high, margins are slipping and growth is slowing. Competition is tough. Though there are some green energy incentives in the stimulus bill, it may only make up for what would have been an astronimical drop by real businesses and consumers facing tougher spending decisions.

Who knows? They might beat and raise, if some footnote in the bill specifies that FSLR's panels will be placed on every police station in the US. But based on the overall economic malaise, I expect a "we expect a tough year due to the economy" type of commentary during the conference call.

Analysts, on average, expect earnings next year of $7/share. That's a PE of about 20 at today's market price, which is rich considering the decline of most tech high-flyers. Unless FSLR's executives forecast above that consensus, my gut tells me that shares will more likely fall than rise.

Whether shares pop or drop tomorrow, I'd stay away. There is a glut of solar capacity in a world that has shifted focus back towards cheap energy instead of green-at-all-costs energy.

Ski Wax
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