Profit from FSLR Bubble

Current price: $257.87
Target Price: $150
Time Frame: 5 Months
One of the most popular stocks on wall street, FSLR has impressed investors since its' IPO and most recently with the Q2 2008 results that for the most part, beat market expectations. They are seeing robust growth throughout the world and have recently opened the new Malaysian plant that will have a 720MW capacity by the end of 2009. On the other hand, the fundamental aspect of FSLR has serious flaws in it that the market bulls are choosing to ignore. First of all, the future growth in this stock at the current price give it a PEG of over 2.0. It is currently trading at over a P/E of 100 and needs to quadruple their earnings within the next few years for the current stock price to match up properly. While one may argue that the company is in a good financial situation with oil increasing causing increased funding in alternative energy, the current stock price illustrates that peoples' expectations for this stock are too high and have caused a massive bubble in the stock price. The market bulls have been inflating the price with hype and future beliefs of the companies performance, however the US market is slowing down and the company may experience more problems in Europe that anticipated.
The EU have increased their governmental regulation scrutiny upon the toxic chemicals inside FSLR's products. First Solar does the majority of their business in the EU and a rejection of the product into the EU would be devastating.
Also don't forget that FSLR's profit margins are quite limited because the company uses the material Cadmium- Tellurium to make the wafers and this material is the rarest stable solid element in the earth's crust. FSLR may have to search deeper in the earth for future Tellurium, causing increased expenses. Overall this company may have been growing well and reported strong Q2 results, however the stock price is not supported by their EPS (ttm) and once the FSLR bulls realize this, then the inflated price level will drop the stock to a P/E (ttm) closer to 50 hopefully.
Conclusion:
While this will be a great long term play, however due to the correction in oil prices, this stock will see a significant drop in price as investors realize the inflated price of FSLR.

Recommendation:

Buy FSLR 240 Sept. Put

About Grove Capital

We will lay out our picks for the week based on our screening analysis and our macro picture of the economy. We will suggest a maximum of five stocks that have an "Attractive" rating and a maximum of five stocks that have a "Dismal" rating. At the end of each trading week we will provide a recap of the market's performance and examine the main factors for the changes in the market. We will also provide a summary for the upcoming week. Overall, we will release our top picks for the week and show their performance at the end of the week and month.