When it comes to profitability in the solar sector, First Solar (FSLR, Financial) has the best track record. However, that track record did not stop shares of First Solar from tanking when the company reported its latest quarterly results.
In the latest reported quarter, First Solar shared EPS of $1.66, thumping the analysts’ estimates by 73 cents. On the revenue front, First Solar reported roughly 81% sales growth on a year-over-year basis to $848 million, falling short of the analysts’ estimate by $118 million. First Solar also adjusted its EPS guidance and now expects 2016 EPS of $4.10 to $4.50 as compared to the prior guidance of $4.00 to $4.50. The consensus of $4.30 falls exactly in the middle of the guidance range.
Despite the revenue miss in the quarter, First Solar still expects 2016 sales of $3.8 billion to $4 billion. Analysts are expecting First Solar to report sales of $3.96 billion.
After the results, shares of First Solar tanked 10% and are down over 30% from its 52-week high levels. I find the recent selloff absurd and think investors should buy the stock on the pullback. Since First Solar’s annual revenue guidance is still the same, I don’t see how the market has punished the stock to such a great extent on a one-off revenue miss.
First Solar is still the best stock in the solar industry. I have been bearish on several solar stocks and rarely recommend buying in the sector. However, after the recent sell off in First Solar, dip buyers have a great opportunity in front of them.
Unlike many other solar firms, First Solar is profitable and has cost-effective technology and strong balance sheet and cash flow. The recent pullback also makes the stock a very attractive value play. With a trailing P/E ratio of a little over 6.5, First Solar is a definite buy on the pullback.
Conclusion
First Solar is the front-runner of the solar industry; although the company reported a bad quarter, its guidance for the full year is still the same. Given the reassured guidance, investors should expect the company to post better-than-expected results in one of the next three quarters of the current fiscal year.
In addition, First Solar’s valuation pretty much limits the downside potential of the stock. Since First Solar is reporting strong revenue growth and is profitable, the stock should be above $65 soon.
Disclosure: The author doesn’t have any position in the stock mentioned in the article.
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