First Solar (FSLR): A Valuation Paradox Amid Bearish Crosscurrents

First Solar (FSLR), a global leader in thin-film solar technology, has carved out a niche in the booming renewable energy sector. Its valuation metrics suggest it is undervalued relative to peers, yet Zacks Investment Research's recent bearish signals highlight near-term risks that could undermine its stock performance. This article explores the tension between First Solar's strong fundamentals and the red flags emerging from earnings revisions and market sentiment.

Valuation Metrics: A Discounted Gem?

First Solar's valuation appears compelling compared to its semiconductor peers. As of June 2025, its EV/EBITDA ratio of 9.29 places it far below competitors like Lattice Semiconductor (LSCC, 98.32) and Monolithic Power Systems (MPWR, 50.61). This metric, which adjusts for debt and equity, suggests the market is undervaluing FSLR relative to its profitability. Historically, its EV/EBITDA has averaged 12.23 over a decade, but the current 7.17 reading (as of May 2025) signals a rare buying opportunity.

The P/E ratio of 10.78 further underscores this disconnect. The semiconductor sector's median P/E is 34.5, yet FSLR trades at just 31% of that level. Even its P/B ratio of 2.30, while slightly above the industry median of 2.28, remains reasonable for a company with $16.37 billion in market capitalization and $3.32 billion in annual revenue. These metrics, combined with its position as the world's largest thin-film solar module manufacturer, paint a picture of a stock that's underappreciated by the market.

Zacks' Bearish Signals: A Near-Term Caution

Despite its attractive valuation, Zacks Investment Research has issued a Zacks Rank #4 (Sell) for FSLR, citing deteriorating earnings expectations. Key concerns include:
1. Earnings Downgrades: Consensus estimates for Q2 2025 have been slashed by 5.3% over the past month, with EPS now projected to drop 18.2% year-over-year.
2. Inconsistent Performance: FSLR missed EPS estimates by 22% in its last reported quarter and has only beaten EPS once in the past four quarters.
3. Technical Weakness: While the stock rose 22.4% over the past year, post-earnings volatility (e.g., a 2.5% drop after Q3 2024 results) reflects investor skepticism.

Zacks also notes regulatory risks, including ongoing investigations into solar trade policies, and the potential for profit-taking ahead of U.S. elections, which could delay renewable energy subsidies.

The Conflict: Value vs. Volatility

The paradox lies in FSLR's long-term growth story versus its short-term execution challenges. On one hand, the global shift to renewables is driving demand for utility-scale solar solutions, a market where FSLR's thin-film technology offers cost and efficiency advantages. Its $1.1 billion Alabama manufacturing plant and R&D investments in cadmium-telluride panels position it to capitalize on this trend.

On the other hand, near-term headwinds—such as supply chain bottlenecks, pricing pressures, and delayed project approvals—are pressuring margins. Analysts now expect only 16% revenue growth in 2025, down from earlier projections, which explains the bearish sentiment.

Investment Implications

For investors, the decision hinges on time horizon and risk tolerance:
- Buy-and-Hold Investors: FSLR's valuation and secular tailwinds make it a compelling long-term play. The stock's P/E and EV/EBITDA are well below peers, suggesting significant upside if earnings rebound.
- Short-Term Traders: Zacks' “Sell” rating and earnings downgrades warrant caution. The stock could face further declines if Q2 results miss expectations or regulatory risks materialize.

Conclusion

First Solar embodies the tension between valuation allure and execution uncertainty. While its discounted metrics and leadership in solar innovation are undeniable strengths, the near-term risks highlighted by Zacks cannot be ignored. Investors should consider scaling into positions on dips, particularly if the company delivers on its growth pipeline, or wait for clearer signs of stabilization in earnings. For now, FSLR remains a stock to watch—carefully.

Final Take: Hold for long-term exposure to renewables but avoid chasing the stock until earnings momentum improves.