Long-term investors often find it tempting to write off one bad quarter in their favorite holding as an aberration -- something for those Wall Street traders to worry about, not true investors. However, First Solar, Inc. (NASDAQ:FSLR) and Zillow Inc (NASDAQ:Z)'s recent earnings disappointments shed light onto their long-term futures.
The best company in an uncertain industry
First Solar, Inc. (NASDAQ:FSLR) is down close to 15% due to an earnings miss -- it earned $0.39 per share against the consensus estimate of $0.56 per share. Although margins held up to expectations, revenue was only $510 million, about $200 million lower than analysts expected. As a result of the bad quarter, management had to lower its full-year guidance.
The debate continues to rage on about whether First Solar, Inc. (NASDAQ:FSLR) is a great value or a value trap. The stock has been down ever since the removal of subsidies in some of its key markets made it more difficult for the company to generate a profit. However, First Solar has recovered better than many of its peers, sparking a cause for optimism among investors.
If solar energy is a viable business, then First Solar, Inc. (NASDAQ:FSLR) will undoubtedly turn out to be a bargain. The company is modestly levered, while solar-module competitor Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) has a much higher debt load. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) benefits from a close relationship with the Chinese government, which allows it to finance its operations via low-cost short-term loans from Chinese banks.
However, if Chinese growth were to slow considerably -- as legendary short-seller James Chanos believes it will in the near future -- it is unlikely that Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) would be able to maintain its favorable access to debt. The company will inevitably face a liquidity crunch that will send it into bankruptcy and a long restructuring process.
As perhaps the lowest-cost firm in the industry, First Solar, Inc. (NASDAQ:FSLR)'s low debt load will allow it to ride out the vicissitudes in demand as the young solar industry gets off the ground. Even so, First Solar, Inc. (NASDAQ:FSLR)'s fate is tied to the ability of solar generation to deliver capacity, reliability, and efficiency to a mass market; the company's earnings miss this quarter shows there is still a long way to go before that happens.
A tech stock riding the housing market
Zillow Inc (NASDAQ:Z)'s stock is down almost 10% following a weak quarterly report. The company lost $0.30 per share versus estimates of $0.11 per share loss. More worryingly, the loss was due entirely to lower margins; the company beat consensus revenue expectations.