Is investing in First Solar a good idea?

James Mackreides, a specialist in solar power, says Donald Trump's policies will help First Solar

There has been a silent energy revolution in the US. The energy generated by geothermal, wind, and solar sources has more than tripled in the past ten years. Among the major winners has been solar energy.

In addition to the eightfold increase in total installed capacity, the share of solar power in new energy capacity has increased almost continuously, from a pitiful 4 percent in 2010 to 66 percent in 2024a number that increases to 84 percent when storage is taken into account. Even though the subsectors' progress has been called into question by Trump's return to the White House, he might not be able to stop its rise. Businesses such as First Solar (Nasdaq: FSLR) will benefit from this.

First Solar, which has been producing and installing solar panels for the majority of its existence, is currently the world's seventh-largest producer of photovoltaic (or solar) power cells. A large portion of its revenue now comes from the construction and upkeep of solar power plants, but in recent years, it has refocused its focus from panels for retail clients to utilities.

Power companies have been keen to invest in solar energy in order to obtain a variety of tax credits and mandates from the US government and individual states, most notably the Inflation Reduction Act of 2022, so this change has turned out to be a wise one.

For First Solar, there are bright spots.

There are some positive aspects for First Solar despite the fact that many of Joe Biden's solar incentives are reduced in Donald Trump's new bill. The first is that Trump's changes won't impact state-level mandates, and the utility tax credits will last longer than the residential panel tax credits.

Most significantly, Trump's tariff policies have resulted in significantly higher prices for solar panels sold by Chinese competitors, who currently control the majority of the market and account for seven out of ten of the largest producers worldwide. Even after accounting for the reduction in subsidies, First Solar is in a better position than it was prior to Trump's election, management claims, despite the fact that the tariffs have also raised the cost of many of the components the company imports.

Over the last few years, First Solar has made great strides; sales increased by 40% from £3.06 billion in 2019 to £4.21 billion five years later. It is anticipated that sales will rise even more quickly in the future, rising by about 50% over the following two years. In addition to operating margins increasing and the company now boasting a double-digit return on capital employed, normalized earnings per share have more than tenfold increased between 2019 and 2024. Even so, First Solar's valuation is still only eight times its 2026 earnings.

First Solar's stock has been soaring, outperforming the overall market for the past six months, since the company recently upgraded its profit projections. Its 200- and 50-day moving averages are also above its current price. As a result, I advise you to purchase at the current price of £184 at 11 to £1. In that scenario, I advise setting the stop-loss at £100, giving you a 924 overall downside risk.