FSLR is trading at a new 6 month low today after trading nearly 11% lower on its earnings report last week:
The stock has struggled ever since it broke its 200 day moving average in October. That was the first clean break of the up trending 200 day ma since late 2012, when the stock broke its multi-year downtrend.
FSLR’s earnings weakness reflected a competitive, possibly oversupplied solar market, as management discussed in its 10-Q release:
The solar industry continues to be characterized by intense pricing competition, both at the module and system levels. In the aggregate, we believe manufacturers of solar modules and cells have installed production capacity that exceeds global demand. We believe the solar industry will continue to experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that such periods will put pressure on pricing.
While solar power has generally been a growth industry over the past 10 years, the significant competition among manufacturers has led to poor results for the stocks for the most part.
Moreover, investors are likely getting concerned about the impact of the fall in oil and coal prices on future demand for solar power. I discussed that issue in a NTT post last month:
Coal and oil price drops have hurt the industry players (coal producers and oil drillers are two of the worst-performing sectors year-to-date), but those price drops are a significant positive for long-term consumers.
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On the other hand, the biggest risk to the renewable industry over the next 5 years is probably cheap energy prices. Coal, oil, and natural gas look to be oversupplied after a binge of investment in the past 10 years (driven by unsustainable Chinese demand), so I expect that lower fossil fuel prices will lead consumers towards using more fossil fuels and less renewables.
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In the meantime, the recent drop in commodity prices could be a serious headwind for solar power installation growth globally over the next few years.
Given the macro backdrop and FSLR’s poor individual results, the solar sector could be in for a difficult year or two as the pendulum has swung back to overcapacity. The long-term bull case for solar power remains, but the road over the next couple of years could be quite bumpy nonetheless.