Toledo Talk "First Solar nominated as the Worst Stock for 2008" id 10717

First Solar is officially headquartered in Phoenix, but the company employs nearly 600 people, including some high tech jobs, at its U.S. manufacturing base and design center, located in Perrysburg Township.

It's been hard to miss the Green Revolution, given the steady parade of supposedly eco-friendly companies tripping over themselves to go public these past few years. Standing out among that crowd, like anything but a ray of sunshine, is First Solar ( Nasdaq: FSLR ) -- my nominee for 2008's worst stock. It's out to save the environment, clean up the air, and generally make the world a better place -- so what's First Solar doing on a "worst of" list? Alas, First Solar is both a great business and a lousy stock.

My interest in environmentalism long predates the current craze. First Solar should be right up my alley. So why isn't it? For one thing, I've heard it all before. While I hope that the shift to greener energy does take hold in society, I've seen/heard the "this time is different" arguments before. I'll posit another hypothesis: The true shift to green tech will be a longer-term megatrend, driven by economic arguments rather than social appeals. It'll take decades to happen, and its path will be strewn with the financial ruins of thousands of unfortunate companies and investors.

No matter how much I appreciate companies like First Solar, and no matter how strongly I believe that we must shift to solar energy as quickly as possible -- and we're still talking decades here, folks -- we absolutely must divorce this business from its stock.

Cold financial logic tells us that First Solar, selling at near 50 times sales, and nearly 200 times EBITDA, is insanely priced. "But it's all about the growth and the opportunity!" the faithful will cry. Certainly, year-over-year revenue growth of 271% looks tantalizing -- perhaps too tantalizing. That growth comes off a very small base, and it will slow down going forward.

Quick calculations suggest that First Solar would need nearly a decade of more "modest" 50% annual growth at a 30% operating margin to justify today's stock price. In other words, making any sort of return on your investment would require even more optimistic growth assumptions. Moreover, First Solar faces key raw-material risks that could curtail growth, crimp margins, and crush share value.

Never confuse a business with its stock, especially when that business's mission appeals to your altruistic nature. I think First Solar is just one quarter of disappointing growth away from being the worst stock for 2008.

Top Bull Pitch : "Every time Al Gore speaks about Global Warming, or other well known Democrats, this stock takes off- like it or not, the Demo's are on the way in.....gotta roll the dice & stick with this one."

Top Bear Pitch : "I generally stay away from valuation shorts, but I just can't resist, at more than 100× 2008 projected earnings."

At the close of trading on Jan 16, 2008, First Solar was priced at $181.56, down $23.23 (-11.34%) for the day.