Can First Solar Stock Drop By 25%?

As the world shifts toward renewable energy, First Solar (NASDAQ: FSLR) is emerging as a leader in the solar industry due to its strong balance sheet and profitable operations. Its thin-film solar panels, designed for maximum energy output, have become the go-to choice for utility-scale solar projects. In fact, the company is in the middle of a huge expansion, particularly in the U.S., driven by government subsidies. With strategic investments in capacity expansion and a robust contract pipeline secured through 2030, First Solar is well-positioned to capitalize on the surging demand for solar energy solutions.

There’s more to consider – With a market capitalization of $15 billion, First Solar has lost 21% of its value year-to-date. Investors should be aware of the company’s sensitivity to economic downturns, as evident in the 2022 Inflation shock crisis when its stock plummeted by approximately 25% in a few quarters. This historical precedent raises concerns that First Solar’s current share price of $135 could potentially drop to around $100 if similar market conditions recur. However, for investors who seek lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

Image by Michael Pointner from Pixabay

Why Is It Relevant Now?

With its groundbreaking cadmium telluride technology and strategic presence, First Solar has cemented its position as a dominant player in the solar market, but the overarching economic uncertainties in the U.S. poses a considerable risk that investors should factor in. What risk is that?

Regulatory dependencies pose a challenge, with any shifts in supportive policies like the Inflation Reduction Act (IRA) likely impacting its profitability going forward. First Solar has provided guidance for FY 2025 operating income in the range of $1.95 billion to $2.30 billion, incorporating anticipated benefits from the IRA. Notably, production credits are expected to contribute between $1.65 billion and $1.7 billion to this forecast. This highlights the substantial role government subsidies play in First Solar’s financial success, potentially overlooked by investors.

Clean energy stocks are navigating a complex landscape marked by inflation concerns, exacerbated by the Trump administration’s tariff and tax policies. Additionally, rising interest rates may intensify market pressures, potentially dampening demand for solar products. As detailed in our macroeconomic analysis, these factors could potentially push the U.S. economy into turbulence or even recession.

The economic challenges are exacerbated by heightened geopolitical tensions, fueled by the Trump administration’s assertive foreign policy. Ongoing conflicts, such as Ukraine-Russia, and increasingly uncertain trade relationships, including renegotiations with traditional allies like Canada and Mexico, contribute to a complex and risky environment for investors.

How resilient is FSLR stock during a downturn?

While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Inflation Shock (2022)

• FSLR stock fell 24.1% from a high of $84.68 on 7 January 2022 to $64.24 on 13 May 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 29 July 2022
• Since then, the stock has increased to a high of $300.71 on 12 June 2024 and currently trades at around $133

Covid Pandemic (2020)

• FSLR stock fell 49.1% from a high of $59.32 on 20 February 2020 to $30.20 on 18 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 14 July 2020

Protecting Wealth

First Solar’s valuation appears attractive at present, trading at approximately 11x last year’s earnings, a discount to its four-year historical average of 19x earnings. However, this valuation multiple could quickly become less compelling if the IRA incentives are repealed. The company’s revenue surged 27% year-over-year last year, but the company’s overall bookings dropped 13%, a metric also referred to as expected module volume sold. Given this growth deceleration and the broader economic uncertainties, ask yourself the question: do you want to hold on to your First Solar stock now, will you panic and sell if it starts dropping to $110, $100, or even lower levels? Holding on to a falling stock is never easy. Trefis works with Empirical Asset Management — a Boston area wealth manager — whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

[1] Returns as of 3/11/2025
[2] Cumulative total returns since the end of 2016

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