First Solar, Inc. (FSLR): Short Squeeze Victim or Fundamental Long Play?

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The solar industry is notoriously volatile, with companies in the sector’s shares being prone to large single day moves up an down based upon a variety of factors.  As such, perhaps it is not totally unexpected that the shares of First Solar, Inc. (NASDAQ:FSLR) experienced a meteoric rise of about 49% on April 9th.  The question for investors is whether First Solar, and perhaps the solar industry in general, is poised for continued growth, or whether this is another blip on the radar for the industry.  This article will take a quick look at the factors behind the explosion in price.

First Solar, Inc. (NASDAQ:FSLR)

The most apparent and immediate cause for the rise in the share price is the analyst day the Company held on April 9th.  At that analyst day, the Company announced improved guidance of $3.8 billion to $4.0 billion in net revenue for 2013.  This beat analysts’ estimate of $3.17 billion.  The Company further announced an anticipated diluted EPS of $4 to $4.50 per share, which also beat estimates of $3.60 per share.  Finally, First Solar announced that it was buying TetraSun, a privately held silicon panel manufacturer.  This news combined with the revised estimates led to the explosion in price.

First Solar, Inc. (NASDAQ:FSLR) started the day trading at $26.6, and went parabolic, touching as high as $41 during the trading day.  The price has since drifted downwards to around $37.18 per share.

It appears the market viewed the acquisition of TetraSun as a positive move for the Company.  TetraSun is a start up company that is focused on building photovoltaic technology systems for rooftops using silicon.  Due to the nature of the smaller scale projects built by TetraSun, the acquisition provides First Solar with a presence in the residential rooftop solar system market.  It appears that First Solar, Inc. (NASDAQ:FSLR) will initially market the rooftop products in Japan, which is offering tax incentives for the installation of residential solar systems.

Although the revised guidance and positive news of the acquisition of TetraSun may be part of the reason for the massive upward momentum, investors need to understand that the price movement may also attributable to a short squeeze.  As of March 28th, the short interest was 16.4 million shares, with a very high short float of 30.59%, and a short ratio of 3.19.  For purposes of comparing short interests, Apple, Inc. (NASDAQ:AAPL) has a short float of 2.18% and a short ratio of 1.12.  The dramatic price moves in First Solar, Inc. (NASDAQ:FSLR)’s stock is highlighted by the high monthly volatility of 6.58%.  However, for those hedge funds and investors willing to brave the storm, the Company has provided an opportunity for profits.  The stock is up over 85% in the last six months, and is up 20.5% YTD.  The stock is currently trading well above its 50 day and 200 day SMA.

Hedge fund managers have not reached a consensus on the prospects for First Solar, Inc. (NASDAQ:FSLR).  Tiger Global Management initiated a new position of a million shares in Q4 of 2012.  (Click here to take a look at Tiger Global’s other potential growth holdings.) It is easy to understand how prominent hedge funds might take opposing views on the stock.

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