Yahoo Finance First Solar, Inc. (FSLR) Stock Is Too Hyped Up for Its Own Good
Undoubtedly, 2017 is the year of the clean and renewable energy business. Year-to-date, solar-panel maker First Solar, Inc. (NASDAQ:FSLR) soared to a nearly 48% lead. But FSLR stock is not the only such investment making waves. Competitors Canadian Solar Inc. (NASDAQ:CSIQ) and SunPower Corporation (NASDAQ:SPWR) achieved similar performances, averaging nearly 37% YTD.
Source: U.S. Department of the Interior via Flickr
Does the bullishness within the industry imply a renaissance for solar stocks? At cursory glance, it’s tempting to think so.
First Solar and its core competitors primarily benefited from China’s raging appetite for renewable energy. The Asian giant invested considerable resources in solar power plants last year, and it will likely do so for the future.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
As a direct result of their massive outlay, Chinese solar stocks like JinkoSolar Holding Co., Ltd. (NYSE:JKS) veritably soared. JKS shares are up an astonishing 93%, making First Solar appear rather pedestrian.
Still, what’s good for the Chinese renewables sector eventually trickles down stateside. China converted some of their former coal mining projects into a dedicated solar-panel space. India, a burgeoning economic power in its own right, is currently developing solar-related transportation technologies. Domestically, South Miami’s new home developments now require solar-panel installations. Such catalysts are naturally bullish for First Solar, and by logical extension, FSLR stock.
But what investors should worry about now is not how solar stocks performed thus far, but how they may move going forward. The Chinese, the Indians and even major cities in the U.S. are pushing clean renewables rather aggressively. You would think that FSLR stock would jump higher on a consistent basis. Yet the reality is that shares are acting pensively despite the optimism.
FSLR Stock Is Backed by Questionable Economics
I strongly believe that one of the fundamental impediments to FSLR stock, and solar stocks in general, is economic value. Contrary to some people’s misconceptions, the sun cannot provide free, limitless energy. In other words, clean renewables can end up costing more to implement than the “free” energy that they bring in.
Think of solar power as an accounting trick. Yes, the sun is practically an unlimited energy source available free of charge to all Earthlings. But it’s only free on the back end. On the front end, you have to pay for the infrastructure and the installation labor. Eventually, the latter will become maintenance and repair costs. As I argued last month, no such thing as 100% solar efficiency exists.
The problem for solar stocks is that current panels are nowhere close to maximum efficiency. As The Motley Fool contributor Travis Hoium notes, Trina Solar and Canadian Solar produce panels that are “14% – 16% efficient.” Raising eyebrows, the equivalent First Solar devices are only 14.4% efficient. To make up for that competitive deficiency, FSLR offers lower prices for its clients.
The aforementioned South Miami case best represents why I’m pessimistic about FSLR stock and the sector in general. Under their new ordinance, Carli Teproff of Miami Herald writes, “new residential construction would require 175 square feet of solar panel to be installed per 1,000 square feet of sunlit roof area, or 2.75 kw per 1,000 square feet of living space, whichever is less.”
That mandate only covers less than 18% of the roof’s surface area. But because solar panels are less than 18% efficient, this clean-energy protocol’s cost savings will not be significant. Certainly, the upfront installation and equipment fees will dwarf the backend month-to-month benefits.
It’s Not First Solar, It’s the Industry
Are these energy and economic inefficiencies the reason why FSLR stock has been flat for over a month? Admittedly, I can’t say that with absolute certainty. However, I propose that people get excited about new technologies. Once they realize, though, that these innovations aren’t as great as advertised, the ensuing response could get ugly.
I’m not putting money into First Solar or solar stocks because I don’t trust its economic benefit. Moreover, clean renewables often conflate with political agendas. For example, South Miami Mayor Philip Stoddard championed his city’s ordinance, in part due to carbon-emissions reduction.
But the debate about the validity of carbon emissions’ role in climate change is ongoing. More important is how we are to steward the environment. A significant number of scientists and researchers believe that the cost in reducing emissions is not worth the benefit.
This heated debate tells you all you need to know about the future of FSLR stock. If it were so easy to convert to clean energy, everyone would have done it by now. Who would want to rely upon fossil fuels and non-renewable energy when we could have our homes and cars take a (free) sun bath?
And that’s exactly my point — the sun isn’t free. To convert thermal energy into a practical format requires tons of money, labor and resources. Because the process is so inefficient, it’s difficult to get ahead. Until First Solar can figure that mess out — and they can’t because of physics — I’m staying away from solar stocks.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
More From InvestorPlace
The post First Solar, Inc. (FSLR) Stock Is Too Hyped Up for Its Own Good appeared first on InvestorPlace.
