First Solar Plunges 21.2% in Past 6 Months: How to Play the Stock?

First Solar (FSLR) shares have underperformed its industry and the broader market, declining 21.2% over the past six months due to weak Q1 2025 results, newly imposed tariffs, and manufacturing issues with its Series 7 modules that are expected to result in $56M-$100M in warranty charges. While the company is expanding manufacturing capacity with a long-term earnings growth rate pegged at 34.5%, near-term estimates have been revised downward and the stock trades at a premium relative to peers like Canadian Solar (CSIQ) and SolarEdge (SEDG), suggesting investors should wait for a better entry point.

Analysis

First Solar (FSLR) has demonstrated significant underperformance over the past six months, with its shares declining 21.2%, notably worse than the Zacks solar industry's 19.3% fall and in stark contrast to the Zacks Oil-Energy sector's 5.3% growth and the S&P 500's 0.3% gain. This downturn for FSLR, which also lagged peers like Canadian Solar (CSIQ, -7.8%) and SolarEdge Technologies (SEDG, +15.0%), is attributed to several factors. The company reported weak first-quarter 2025 results, with earnings per share decreasing 11.4% year-over-year and a significant slide in operating income. Compounding these challenges, First Solar faces manufacturing issues with its Series 7 modules from 2023 and 2024, potentially incurring warranty charges estimated between $56 million and $100 million. Furthermore, newly imposed 10% tariffs on solar modules from key manufacturing regions like Vietnam, India, and Malaysia are expected to increase costs and impact international operations, leading FSLR to lower its 2025 guidance. Despite these headwinds, First Solar is actively expanding its manufacturing capacity, including a new U.S. facility that commenced operations in Q2 2025 and another ~4GW expansion underway. The Zacks Consensus Estimate projects a long-term (three to five years) earnings growth rate of 34.5% and revenue growth of 16.3% for 2025 and 16.8% for 2026. However, near-term EPS estimates for 2025 and 2026 have been revised downwards in the past 60 days, and FSLR shares trade at a premium, with a forward 12-month Price/Sales ratio of 2.92X compared to the industry average of 1.16X and significantly higher than peers CSIQ (0.10X) and SEDG (0.83X).

Key Decisions for Investors

• Prospective investors should exercise caution and consider waiting for a more favorable entry point for FSLR, given its premium valuation, recent downward revisions in earnings estimates, and significant near-term risks from tariffs and manufacturing-related warranty charges.
• Current FSLR shareholders with a long-term horizon may consider holding their positions, acknowledging the company's substantial manufacturing expansion plans and strong long-term earnings growth outlook, while closely monitoring the resolution of Series 7 module issues and the actual financial impact of tariffs.
• Investors should monitor upcoming financial reports for clarity on the magnitude of warranty charges and the precise impact of tariffs on FSLR's cost structure and profitability before making new investment decisions.
• Given FSLR's current challenges and premium valuation, investors seeking exposure to the solar sector might evaluate peers like Canadian Solar and SolarEdge, which have shown recent outperformance or trade at more attractive valuations, although a full comparative analysis is warranted.