First Solar Inc. (NASDAQ: FSLR) is caught somewhere between a rock and a hard place. The solar player’s cost of production is above what the prevailing prices are and there are performance issues when being compared to other solar technologies. The question to ask after a 90% drop in value is whether or not shares have bottomed or if the recent recovery is just an opportunity to short more shares.
The answer likely depends upon what side of the green energy versus fossil fuel energy argument you are on. Still, there are two sides to this coin.
If you ask Axiom Capital’s Gordon Johnson, he will do a very solid job arguing that First Solar could implode. Yep, a total write-off. On Friday he came on CNBC and laid out the case about how new orders are drying up and that the company is living solely off of orders which were signed in the past. He has predicted before that this could be a zero at the end of the day. We also saw just last week how the nominal short interest is now at the highest level again in months and months.
But what about the recent price trading action? Analysts can say all they want, but at the end of the day it is the trading tape which often says more than anything else. Shares managed to close at $15.06 on Friday despite the death-spiral prediction from Axiom. That is down 5% for the week. Still, this stock has now recovered more than 30% from its $11.43 low seen as recently as June 4. That is an impressive move even if you consider the destruction of wealth here.
The solar sector has serious problems. Without subsidies and without deals already under contract, the entire sector would feel like a write-off. Many still have high hopes for solar and other green or renewable sources of energy. The verdict is still out on this one.
JON C. OGG