Is First Solar Crashing Back to Earth?

We’ve seen solar stocks take a hit so far this year. SunPower’s shares have slumped 20 percent since the first trading day of 2008, and Chinese solar companies Trina Solar, Yingli Green Energy and Solarfun Power Holdings have all seen their stocks fall as well. But the so-called “Google of solar” — thin-film solar stock darling First Solar — is currently trading at under $190, down from around $275 at Christmastime. That’s not just an industry dip, that’s a reality check.

So what’s going on? First Solar may be responding to solar industry shifts. E2T writer Stacey Higginbotham contends that solar has fallen into one of those boom-and-bust cycles, familiar to those in big capital-intensive markets like housing or semiconductors.

There’s also the fact that the Energy Bill, signed in December by President Bush, didn’t renew the solar tax credit, giving solar investors a good scare. The investment tax credit, which is equal to 30 percent of the value of solar gear, will drop to 10 percent at the end of the year unless new legislation is introduced to extend it.

But solar stock watchers have been eyeing the meteoric rise of First Solar for months, and questioning when it would fall. This week on Motley Fool Jim Gillies declared First Solar “2008’s worst stock:”

Cold financial logic tells us that First Solar, selling at near 50 times sales, and nearly 200 times EBITDA, is insanely priced…Quick calculations suggest that First Solar would need nearly a decade of more “modest” 50% annual growth at a 30% operating margin to justify today’s stock price. — Motley Fool

First Solar might be one of the first solar companies to get a hit off of thin film solar, but it’s technology is first out of the gate, not the future of thin film. As many have noted, the company’s materials of choice have problems — cadmium is toxic and tellurium can be difficult to get.

And the next generation of solar thin film is likely to come from startups like Nanosolar, which started commercial production last year. We’re thinking the beginning of 2008 is just the start of First Solar’s wake-up call.

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