Here (Doesn’t) Come the Sun

Sometimes good intentions just aren’t enough.

First Solar makes thin-film solar panels. The Tempe, Arizona company has manufacturing plants around the world. Before the credit crunch when subsidies were plentiful and new housing construction was booming, the company was riding high. The price-earnings ratio was over 100 and earnings were doubling year-by-year. Even after the bloom came off the rose and both earnings and the share price fell, the company still enjoyed a PE of 20 and earnings, while not growing, were stable.

Not any more. In the midst of a fiscal crunch, government subsidies have gone away. The company’s most profitable product, tax-credits that could be traded between unrelated parties, depends completely on fiscal largesse. And those days are over.

So the company is shifting its strategy away from generic roof-top units, firing 30% of its workforce and exploring strategic opportunities. The shares have fallen 90% over the past year. Large institutional shareholders have been selling. Now the company is looking for a way forward that doesn’t depend upon tax credits.

I wish them well. Heaven knows we can use all the different energy sources we can get; developing new technology so it is ready to go once electricity prices rise seems sensible. But with so many alternative energy companies failing or restructuring, it’s too bad so many people lost so much money on so much hype. “Hope” is not a sound investment strategy.

Douglas R. Tengdin, CFA
Chief Investment Officer
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