First Solar Rides the Wall of Worry

Dana Blankenhorn

When people first get excited about solar energy, one of the first things they think of doing is to invest in it. And the first place they think to throw their money is thin-film solar manufacturer First Solar Inc. (FSLR) of Tempe, Arizona. 

First Solar is what I might call the  “big iron” play in solar. That is, it mainly produces large, flat panels that are installed by utilities and connected to the grid.

It’s a good business. The company regularly earns 25% on assets, 30% on equity, and it’s managed conservatively.

So why is it that if you bought in during the mid-point of its 2007 run-up you’re only at break even and that since October of 2008 the stock has been basically flat?

It’s a mystery to me but here are some theories.

One reason is what I call the wall of worry. The wall of worry is a good thing. No stock rises when everyone wants to buy it. It’s only when there are lots of people willing to sell, for whatever reason, that it can climb. But the wall can also hold you down, and it seems to be holding this stock down.

What is everyone worried about? Lots of things.

Technology can change fast. Shorts seem to love the stock, betting on it to fall based on price cuts, changing government policy, or German and Chinese competition. Thus analysts are as likely to downgrade First Solar as upgrade it. It’s generally assumed to be a buy at 12 times earning and a sell at 17 times – at $132 per share it can look toppy. But that number is based on anticipated earnings, not current earnings. (Its P/E based on currently reported earnings is over 17.)

Another reason they worry might be that when Michael Ahearn left the CEO slot last year to be replaced by ex-Honeywell executive Robert Gillette, Ahern sold half his FSLR holdings, for $142 million. Ahearn, who is in his mid-50s, said he would become a lobbyist.

Who retires to become a lobbyist? (Lawyers and activists, maybe?) Who leaves a growing company in his mid-50s if everything is A-OK? (Someone looking for a different challenge, perhaps?) I should also note that Ahearn lists his background as investment banking and law, not operations.

The best reason for worry, to me, is whether the company can stay on top of the technology.

New solar technologies may be flexible, they may harvest heat and infrared light as well as visible light, they may not look like panels or be bought by utilities. They may come out of nowhere. Their hype may be justified.

Gillette has to navigate these choppy waters and be ready to buy breakthroughs at high prices when they become ready for the market. Is his background in aerospace and operations right for the job? I don’t know. But I don’t think anyone has the perfect background when things are changing so fast.

One important disclosure point. I don’t own any First Solar stock. (I have some Applied Materials acquired in the 1990s, long before they got into solar, as well as Intel and GE shares bought around the same time.)

In terms of technology history First Solar reminds me a little of the old Digital Equipment Corp., the minicomputer maker that rose to prominence in the 1960s and fell in the 1980s because it failed to adapt to the PC era.

But DEC had its chance, and First Solar has its, too.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it’s the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore’s Law. It’s the application of the last to harvesting the energy all around us he’s most excited about. He lives in Atlanta.