Stock to Watch: First Solar
Wednesday, September 12, 2007
First Solar (NASDAQ: FSLR) is a momentum darling, and when the momentum dries up, you don't want to be stuck holding it. First, I want to say that I think solar will emerge as the winner of the alternative energy wars and I think there is a lot of potential for these companies in the future; in the short term I'm a little more skeptical. And its easy to be skeptical when solar companies trading on the Nasdaq are a dime a dozen these days and their valuations are beyond rich. First Solar, for example is currently trading at about 110x trailing P/E, 70x forward P/E, and 1.8 PEG. That isn't cheap in anybody's book. The technical picture doesn't look any better:
First Solar broke its 50 day moving average when it reported outstanding earnings in August (1) (although at 110x trailing P/E, they would have needed a report beyond this world not to sell off). The stock then rallied on weak volume at bounced right off the 50 day moving average (2). It rallied again on somewhat average volume and reclaimed the 50 day MA (3) but double normal volume an a 4% drop today proved that it was a false breakout (4).
Like I said before, I think solar is ultimately the best alternative fuel and will win out, but these stocks are so risky and given the recent turmoil in the market, the momentum may be gone for a while. Think back to the tech boom. Every guy with a website and an idea filed for an IPO, these companies traded at outrageous multiples and eventually got their knees taken out when the bubble burst. But that didn't mean the internet was dead or that tech companies went away, quite the opposite, the strong companies, Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), Dell (NASDAQ: DELL), Cisco (NASDAQ: CSCO) and many others all survived and are still strong today (although trading at much more reasonable multiples). The same thing will happen with solar eventually... but now is no time to chase this stocks up a staircase to nowhere.
Posted by Rob Pitingolo 6:12 PM
Labels: First Solar Inc.
