I started First Solar (FSLR) in mid November [Starting Small Stake in 2 Emerging Solar Leaders], after some incredible earnings in early November [First Solar (FSLR) Impressive Results]. I've had a hard time wrapping my mind around a large position in this name due to its extreme valuation, but I do like it's ability to grow without limitations of polysilicon.
That said, earnings season is upcoming for solar stocks and these are very volatile names in earnings season (even more so than usual). And I believe (maybe my memory is failing me) that First Solar stated that 1st half 2008 expectations would be in line with back half 2007. So that could potentially provide disappointment for such a highly valued stock. Actually opening your mouth in this environment provides the potential for disappointment, so I am going to exit and see if I can re-enter at a lower price maybe post earnings. The stock has support at its 200 day moving average in upper $130s, which also coincides with its October 2007 lows. So if something goes amiss with guidance we could see a move there. Or not. But another move I am filing under "better safer than sorry".
As for valuation, it is very difficult as this is the only major solar player not stuck in the polysilicon shortage issue. So it has scarcity value. And it's earnings last quarter surprised everyone so I think everyone is guessing on First Solar's earnings potential. Analysts have a consensus of $4.51 next year with a range of $3.25 to $6.24. So it's a huge variance, but very typical for every solar stock. Everyone is guessing. If $5 is reasonable this is still a very pricey 35x forward earnings multiple. But for all we know earnings could be $4 or $7 by the time we hit to the end of fiscal 2009. However, this is just the type of high multiple stock that the market has punished without mercy so no need to take out sized risk in this environment.
Hence, I am closing the 0.6% stake in First Solar around $174, and will re-assess down the road. I do plan on adding this name back, based on the information I have, at some point in the future since I do think "in the end"[The Long Term in Solar] the solar space will be dominated by a handful of dominant players but this will probably take 4-5 years to play out. And First Solar already has the size/scale to be considered a front runner to be one of those dominant players. But for now, I'm worried about the next 4-5 weeks, and I'll let someone else take the risk (and potential reward).
No position
5 comments:
Would you consider shorting FSLR - it seems that too many variables need to be right for the stock to go up (earnings, outlook, margins, etc) and only one little thing can tank the whole stock? Thanks in advance - just found your blog and am very intrigued with your trades and analysis - David
I can't short individual names for the fund, so I use ETFs.
I consider shorting a retail dominated stock like any solar to be high risk/high reward. Many of these stocks move +/-30% post earnings (or more) And many move with no semblence of sense (they go much too high with no tangible association with value and vice versa). It is hard to fight the herd! Even tougher gaming it going into earnings.
So if you are a Las Vegas type, it's probably worth a shot, but understand you could lose a lot instantly. I like to hit a lot of singles, doubles, and the occasional triple. Taking a large stake in any company ahead of earnings is a home run or strikeout proposition. Especially solar. So either a huge score or you go home with tail between legs. :) Not my cup of tea.
With all that said, other than ISRG and MA I cannot recall any company with any valuation of significant level doing well post earnings in this cycle. I might be missing a few who did do well, other than those 2, but its been running 95% crash/5% boom this earnings season. Worse than usual. I am sure many of the FSLR investors are BIDU, ISRG, AAPL, GOOG types so they will be wary. Or should be.
Thanks for your thoughts - I realized that after I had posted my comment that you can't short stocks while running a mutual fund. I think the slow and study method always wins out in the end.
I just found your blog today and have been reading some of your posts - nice analysis, but tough market at this time. You can go ahead and put me down for $5k in your fund when you start it up, possibly more if I can ever make any money back in this market this year.
Look at the symmetry of this chart, from 100 to 280 in three months, my guess is it would do the same on the way down with a stop at 120 then settle down at 100, around late march. Some of your comment regarding poly shortage should be change to poly oversupply in 2009 which cause margin compression, i believe that's what market is trading for. At one point your solar holding is as high as Fertilizer, if DBA start correct, i believe Pot and MOs will suffer.
Hi David,
If you don't mind could you add your comment to the "Progress Towards Raising $15M" entry so I have it all in 1 place? thanks
Yes a very tough market right now.
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