Bill Maurer - Shorting First Solar: Perception Versus Reality

So why have things gotten so much worse? Well just think about things logically. When you don't sell as much as expected, your inventory levels rise. Over the past two years, First Solar's inventory levels have risen from $172 million to $582 million. Yes, you can't sell what you don't have, but that is a staggering inventory increase. Also, if you have too much inventory, you might need to sell it for less than expected. That will impact margins. Another issue is accounts receivable. First Solar's accounts receivable total (including trade receivables and unbilled A/R), has increased from $295 million to $867 million over the past two years. In just the past two years, accounts receivable and inventory have increased from one third of current assets to one half of current assets. On the flip side, cash and marketable securities (as a percentage of current assets) have declined from nearly 51% to 23% over that time. The balance sheet hasn't just gotten weaker, it has become less flexible, and that could force more issues down the road.

Read it at Seeking Alpha
Shorting First Solar: Perception Versus Reality
By Bill Maurer

First Solar (FSLR) has been a stock on my watch list for quite some time since I expect the solar industry to be a primary source of growth over the next decade. The sheer magnitude of the stock’s decline considering its low levels of debt and earnings potential has given the impression of this move being overdone. This article explains why the stock may be a value trap and is sufficient reasoning to pause when considering buying at current levels. Depending on how the next several quarters play out FSLR may offer meaningful upside potential, but for now I remain in search of other ways to play the solar sector. (Chart Source: Bloomberg)