First Solar, Inc. (NASDAQ:FSLR) is well positioned to gain from the high growth solar energy industry for the next decade, says a report from Seeking Alpha by Casual Analyst. The report believes that the company has a limited downside considering the strong balance sheet, cash balance and project assets on hand. The author believes that the downside possibility is only 30% against likely 2X to 3X return. The author suggests a “buy and hold” strategy on First Solar shares would offer the best returns for passive long-term investors.
‘Buy and Hold’ best strategy for First Solar investors
Investors could enter by making a small position, which would be consistent with their portfolio, and then add more shares as opportunity knocks. First Solar, Inc. (NASDAQ:FSLR) will remain a healthy option unless the company “loses its competitive edge” or the growth in the solar industry slows down, which would be viewed as an exit bell from the investment.
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Though buy-and-hold is the simpler and better investment strategy, more active investors can try to take advantage of the volatility in First Solar’s stock, suggests the author. Owing to the nature of the company’s project, which has high risk of delays, the earnings are “highly unpredictable and erratic.” Therefore, a delay in any one of the big projects could impact the quarterly earnings. Also, an unexpected “upside in the module business” could push the earnings up significantly.
Volatility presents opportunity
It has been noticed that the First Solar, Inc. (NASDAQ:FSLR) stock is extremely volatile after the announcement of earnings. Though such short term rallies may not be of much significance to long term investors, they do create good opportunities.
Observing the volatility metrics of First Solar, Inc. (NASDAQ:FSLR), the author notes that the historical volatility for the company is in the range of 0.5 to 0.6, which makes the company an ideal option for “options-based strategies.” However, during earnings time and analyst days, the volatility is much higher. In general, before the announcement of major news, volatility for the options is in the range of 0.7 to 0.9. So, according to author, with careful planning in the short-term options market, investors could earn an additional income or “build a lower cost long-term position.”
The author also details other investment strategies to exploit the options volatility and the resulting options premium, which can be viewed here.