In what’s been a good year for the solar industry, First Solar, Inc. (NASDAQ:FSLR) is the most radiant performer.

Shares of the Arizona-based company have doubled since July 2022 and are up more than 70% year-to-date. They are trading at their highest level in more than a decade and on pace to eclipse 2020’s return of 77%.

This may only be the beginning of a multiyear run.

First Solar is recharging amid increased attention on alternative energy sources. With gasoline and natural gas prices elevated and volatile, more households and businesses are turning to the competitively priced (and often more stable) solar option. 

As a result, a period of shrinking sales is being replaced by growth metrics that are grabbing investors’ attention. Wall Street is projecting 28% top-line growth and a return to profitability in fiscal 2023. With this kind of growth hard to come by lately, the outlook is bright for First Solar shareholders.

What is First Solar’s Business Model?

First Solar is the planet-friendly version of the traditional utility company. It makes semiconductor photovoltaic (PV) modules that turn sunlight into electricity. The secret sauce here is a proprietary thin-film technology composed of cadmium telluride material.

Although it is a U.S.-based company, much of First Solar’s revenue is derived from Europe, Japan, and India where favorable renewable energy policies continue to be embraced. It is here where renewable energy project operators and system integrators purchase the solar power modules to generate clean energy. This main commercial segment accounts for approximately 80% of revenue.

The remainder of sales come from the residential side of the business and various operations and maintenance (O&M) services. Combined, this ‘Other’ segment generates relatively steady revenue streams that offset cyclical module sales.

Does First Solar Have Good Growth Prospects?

According to the International Energy Agency (IEA), solar PV generation rose 22% last year as utility plants, industrial businesses and residences brought global capacity to record levels. Generation will have to grow 25% annually for the rest of the decade to remain on pace with the agency’s Net Zero Emissions by 2050 target.

First Solar is well-positioned to benefit from this generational shift because its technology can generate more energy per module than competitors across several markets. This creates savings for customers and a cost advantage for First Solar. Now on its seventh iteration, the technology is distancing itself from coal plants and gas utilities in terms of cost per megawatt.

Unsubsidized solar is expected to assert its cost advantage and become a bigger part of the global energy mix over the next few years. By 2025, the company expects installed PV capacity to double from 2020 levels.  

First Solar’s key ‘bookings’ metric has been growing at a nice pace. Through the end of the third quarter, bookings were at a record 43.7 GWdc (Gigawatts direct current) with projects as far out as 2027. This shows that customers are lining up to deploy solar modules well into the future. When a company’s end markets see such an extended opportunity, this bodes very well for long-term growth prospects.

With manufacturing capacity ramping and a new Ohio R&D facility in the works, management is anticipating plenty of demand ahead. The company’s current estimate for total booking opportunities is more than twice its current backlog. And given the Biden administration’s clean energy push, it’s not surprising to see most of the opportunity is in North America. 

Will First Solar Stock Keep Going Up?

First Solar stock has moved decisively higher in each of the last four months and is at it again this month. However, with few winning areas outside of the energy sector this year, the trade may be getting a bit overcrowded. 

With this said, there’s no reason First Solar can’t keep trending higher after a potential pullback. 

The solar growth story is getting harder to ignore due to global policy momentum and cost-effective innovation. First Solar’s thin-film technology and fast, sustainable manufacturing process provide an edge that should make it a leading clean energy player for years to come. Yes, there will likely be legislative and other hurdles along the way, but these can once again be overcome. 

Solar stocks have long commanded premium valuations but are starting to live up to them. In the aftermath of the pandemic and now the Russia-Ukraine conflict, the importance of securing sustainable, clean energy supplies has never been more apparent. 

On average, First Solar has traded around 65x earnings over the last five years. Based on the consensus estimate of next year’s earnings, it has a 47x forward P/E. If the multiple expands back to its historical average, the stock would return to the $200 level for the first time since 2009.