First Solar (NASDAQ: FSLR) has experienced a 14% loss year-to-date in the past week, significantly trailing the broader market. However, beneath this decline lies a more complex story: evolving energy policy, solid fundamentals, and a valuation that may entice long-term investors willing to accept some volatility. If you prefer upside with a steadier experience than an individual stock, consider the High Quality portfolio, which has outperformed the S&P and achieved >91% returns since its inception.
Washington’s Shift Is a Wake-Up Call
At the center of the recent downturn is a change in federal energy policy. The U.S. Senate Finance Committee has suggested gradually eliminating solar and wind energy tax credits starting in 2026. This legislation would cut those credits by 60% in the coming year, phasing them out completely by 2028 – four years sooner than the current expiration of 2032. In comparison, credits for nuclear, hydroelectric, and geothermal energy would be prolonged until 2036.
This shift weakens one of solar’s significant advantages and impacts First Solar severely. With 93% of its $4.2 billion revenue for 2024 linked to U.S. projects, First Solar faces more exposure than many competitors in the industry. The rooftop solar and residential upgrade sectors—key areas that drive consumer demand and installation volumes—are at risk of losing all support.
Fundamentals Tell a Different Story
Despite the cloudy policy outlook, First Solar’s core business remains strong. Its Q1 2025 results fell short of expectations for both earnings and revenue, with EPS reported at $1.95 against a forecast of $2.50, and revenue at $844.6 million versus an anticipated $866.2 million. However, underlying this headline miss, gross margins improved to 41%, up from 37% in the prior quarter—an indication of effective operational execution.
The company is intensifying its focus on domestic manufacturing and cutting-edge technology, including its CURE process and cadmium telluride thin-film modules. With a fully integrated supply chain and ongoing investment in U.S. production capabilities, First Solar is well-positioned for future demand, especially as U.S. electricity consumption is projected to increase sharply.
Valuation: Cheap for a Leader
At approximately $145, First Solar appears to be attractively valued. Its P/E ratio is only 12.2 – less than half of the S&P 500’s 26.9. While its P/S ratio of 3.8 is slightly above the index’s 3.1, this premium is justified by the company’s superior growth and profitability.
First Solar’s Revenues have significantly increased over recent years. Revenue has grown at a 14% CAGR over the past three years – nearly three times the pace of the S&P 500. Over the last 12 months, sales surged 27%, and quarterly revenue rose 6% year-over-year – a rare strength in a softening market.
Profitability & Balance Sheet Strength
First Solar is not only growing – it is doing so profitably. Its operating margin stands at 33% for the last four quarters, with a net income margin of 31%. Operating cash flow in the past year reached $1.2 billion, resulting in an OCF margin of 29%, nearly twice that of the S&P 500’s 14.9%.
The balance sheet is equally solid. Total debt is only $719 million versus a market cap of $15 billion, leading to a modest 4.7% debt-to-equity ratio. The company also maintains $891 million in cash, representing 14.8% of total assets—a liquidity buffer that offers strategic flexibility.
A Weak Spot: Downturn Resilience
First Solar’s primary shortcoming is its susceptibility during market downturns. In the 2022 inflation crisis, the stock plummeted 49.3% compared to the S&P 500’s 25.4% decline. Similar trends were observed during the COVID market crash (–49.1% vs. –33.9%) and the financial crisis of 2008 (–72% vs. –56.8%). While FSLR frequently rebounds quickly, its enhanced sensitivity to macroeconomic shocks renders it a high-volatility investment despite robust fundamentals. Our dashboard How Low Can Stocks Go During A Market Crash demonstrates how major stocks performed during and after the last six market crashes.
Bottom Line: A Mispriced Leader?
Despite short-term challenges, First Solar’s fundamentals rank among the strongest in the clean energy sector. Growth, profitability, and financial health all score high. The company’s only significant weakness is its sensitivity to market corrections and shifts in policy.
For long-term investors who can tolerate risk, FSLR stock at $145 represents a unique opportunity. The market seems to be anticipating worst-case policy scenarios while disregarding the company’s dominant positioning and margin strength.
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