First Solar May Have Just Signaled It's Overvalued

Editor's note: Less than an hour before the close, First Solar was down $4.75, or 9.08%, to $47.54. This piece was originally posted at 11:40 a.m. EDT.

NEW YORK ( TheStreet) -- Shares of First Solar ( FSLR) were taken to the woodshed after investors learned of sales delays and a shelf offering of up to 9.98 million shares of stock.

First Solar expects delays in some key sales closing dates. The result is a probable shift from the second quarter to the second half of 2013.

In other words, investors should anticipate the next earnings report to be less attractive, and with any luck, either the third and or fourth quarter will increase by a corresponding amount. According to First Solar, the annual report is expected to remain unchanged.

This change in guidance comes not long after the company trumpeted its own success. That combination is not confidence-inspiring.

On the face of it, a relatively small delay in closing some sales isn't disquieting. What's more perplexing is the management team's apparent overexuberance in announcing quarterly guidance.

Investors should question whether other statements, including cost-per-watt goals, are realistic, are similarly exuberant.

The primary driver behind the stock's price action during after-hours trading on Wednesday and into Thursday was the shelf offering of almost 10 million shares of stock by the company.

The timing of this offering reminds me of pharmaceutical companies. Relatively small start-up pharmaceutical companies are notorious for delivering announcements that send shares higher, quickly followed by stock offerings that dilute the value of existing shares.

If the underwriters are able to place every share allowed into the market, current shareholders will be diluted to the tune of about 16%.

FSLR Ending Cash Quarterly Chart FSLR Ending Cash Quarterly data by YCharts

First Solar doesn't appear to have a balance sheet problem in relation to its cash flow -- especially not after accounting for the company's reaffirmed $4.00-$4.50 per share 2013 earnings guidance. Why is First Solar issuing equity instead of debt when credit is so relatively cheap?

Before you ask that question, keep in mind that The Wall Street Journal has other news about company stock buybacks by many other companies.

Some companies are issuing debt for the sole purpose of buying shares. Apple ( Apple) and General Electric ( GE) come to mind.

Apple and GE are buying back stock because they have money in the bank and solid positive cash flow. First Solar has nearly $1 billion dollars in the bank, and based on the midpoint of the company's 2013 guidance of $4.25, it should add more than $250 million, bringing the total cash to more than $1 billion dollars without an offering.

Why does First Solar's leadership believe a billion dollars isn't enough and that it needs to increase the size of their checking account?

On possibility is that management thinks the stock is overvalued so the company should raise capital now while it can. Another is that First Solar wants to position itself to make acquisitions while the market is depressed.

The company also stated that the funds may be used for general business purposes. After considering the cash and cash flow position of the company, investors shouldn't be surprised to find a company or two being bought out.

The key is to find which companies if any are likely takeover targets. Possible targets will be the subject of a future First Solar article, but in the meantime, if we learned anything from yesterday's announcement, we know First Solar's forecast is anything but clear.

At the time of publication, Weinstein had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.


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