Despite all the recent stock market volatility, the S&P 500 has delivered a solid 12.8% gain in the last 12 months. And after factoring in dividends, shareholders have reaped a 14.3% total return. However, not all of its constituents have been so fortunate. In particular, First Solar (NASDAQ:FSLR) is down more than 40% over the same period.
Seeing a company lose almost half of its market-cap isn’t an encouraging sign. However, suppose the underlying business remains fundamentally sound, and this is just a case of tackling short-term challenges? In that case, such downward momentum can produce lucrative buying opportunities. So does First Solar fall into this category?
Why did the share price tumble?
As a quick reminder, First Solar’s a manufacturer of photovoltaic modules used in modern solar panels. And with countries seeking to expand their renewable energy infrastructure, business was seemingly booming. In fact, the stock had jumped around 400% between June 2020 and June 2024.
Sadly, this momentum started to decline. Rapidly expanding stiff competition within the solar industry has hampered demand for the firm’s products. And with Chinese manufacturers flooding the market with cheaper alternative components, both growth and earnings have suffered significantly.
As a result, investor sentiment has weakened. And when paired with rising uncertainty surrounding its ability to bounce back, the S&P 500 stock’s unsurprisingly taken a hit.
Potential for a comeback?
Despite the change in investor attitude, First Solar is far from a doomed business. In fact, the newly announced wave of US global trade tariffs could prove to be a handy catalyst for getting things back on track.
The group’s manufacturing facilities are located in the US. And with import duties being placed on imported solar components, the company could attract new local customers. At the same time, as interest rates steadily fall, solar energy projects become more commercially viable, as does installing solar panels on residential properties. In both cases, that boosts demand – a tailwind that First Solar is aiming to capitalise on.
With that in mind, it’s not so surprising to see that many institutional analysts have been updating their recommendations to Buy or Outperform in recent months. And even though there’s still a broad range of opinions, the average consensus is that the First Solar share price will reach around $200 by this time next year – a 25% gain from current levels.
Time to consider buying?
With sentiment surrounding this business improving, First Solar certainly appears to offer an interesting entry point to the US renewable energy sector. However, it’s far from a risk-free endeavour.
The business is still highly reliant on government support, which under the new administration might be hard to acquire moving forward. Meanwhile, the previously highlighted threat of cheaper Chinese alternatives could return if a new trade deal is successfully negotiated between the US and China.
All things considered, I’m not tempted by this S&P 500 stock. At least, not yet. The business is currently exposed to several external threats that management has little control over. But should these challenges dissipate, First Solar could become a more interesting prospect for my investment portfolio. That’s it remains on my watchlist, rather than my buy list, for now.
