First of all, one standout element of First Solars financial position is its balance sheet. At the time of this writing, the company has a cash-to-debt ratio of 2.8. While this is substantially lower than its 10-year median of 5.28, it remains strong. With such a robust cash positionfurther supported by an equity-to-asset ratio of 0.66the company is able to offer financially attractive energy solutions, attracting low-cost financing from leading utilities and investors. This solid financial foundation has been key in helping First Solar develop a substantial backlog of bookings, totaling approximately 76 GW as of mid-2024, which provides future earnings and revenue visibility through 2030.

For 2025, I currently estimate 30% revenue growth and 65% normalized EPS growth for First Solar. This outlook is supported not only by the company’s strong backlog but also by its increased manufacturing capacity. Despite high capital expenditures for new factories, management has effectively controlled costs. This operational efficiency is a key reason I expect continued strong growth from the company, building on the momentum of the consensus estimate of 35% revenue growth and 68% normalized EPS growth for FY24.

Given the companys P/E ratio without non-recurring items of 18.7, which represents a moderate contraction from its 10-year median of 20.4, this appears to be a viable entry point. Additionally, the companys five-year revenue growth rate of 4.3% highlights the substantially stronger current outlook, which supports an investment decision, especially considering the significant expansion in its PS ratio from a 10-year median of 2.5 to 6 today. While the companys balance sheet remains strong, its increasing net debt is reflected in its EV-to-revenue ratio of 5.7, which is considerably higher than its 10-year median of 1.89.

As I consider First Solars P/S ratio to be too high at the moment, I think it is likely that this will contract somewhat in 2025. At a P/S ratio of 5 and with full-year total revenues coming in at my estimate of $5.82 billion, the companys market cap would be $29.1 billion. This would represent a percentage increase of 28.5% from its current market cap of $22.64 billion.

This is indeed a strong near-term return, and looking forward over a longer time horizon, I believe solid annual returns can also be maintained. Growth in 2026 is likely to be substantially slower than in 2025 due to the immediate boost from its new capacity expansions tapering off, as well as the end of higher demand in 2025, driven by an expected lower interest rate environment. Therefore, if the stock becomes overvalued in 2025 due to short-term enthusiasm, we could see a period of volatility in the latter half of the year. However, I believe this is a great company and one worth owning in the medium term while continuing to assess its long-term prospects and market position.

One major operational threat to consider when allocating to First Solar is that crystalline silicon technology accounts for approximately 95% of the solar market, making it a significant competitive challenge to First Solars thin-film modules, which only represent about 5% of the market. Recent improvements to crystalline silicon, such as Passivated Emitter and Rear Cell (PERC) and bifacial modules, could potentially surpass the performance of thin-film technology in certain conditions.

Moreover, perovskite solar cells are emerging as a promising technology due to their high efficiency and low production costs. Although these are not yet commercially viable, with ongoing R&D, they could become a key competitor to thin-film panels. To combat the threat from perovskites, First Solar is actively exploring tandem technologiescombining different materials, such as perovskites, with traditional thin-film layersto enhance its product offerings.

Looking at the investment potential from a macroeconomic perspective, First Solar is clearly vulnerable to supply chain disruptions and reduced demand for renewable energy in the event of a heightened wartime economy, stemming from escalations in current tensions between the West and Russia over Ukraine, Iran in the Middle East, and China economically, including the underlying tension surrounding Taiwan. I remain optimistic that each of these geopolitical uncertainties will be navigated carefully, but its still important to understand that holding First Solar in portfolios creates exposure to this risk rather than hedging against it. This is true even though management has mitigated this risk substantially by vertically integrating the company.

First Solar is one of the best solar investments I know of. I am very optimistic about its long-term future, and I believe the demand for solar as a predominant form of energy will be enduring. While there may be moments of volatility in demand due to certain macroeconomic trends, I consider First Solars balance sheet strong enough to withstand any temporary hardships that arise. Therefore, while this may be a compelling near-term investment, I encourage readers to consider holding the company in their portfolios for the long run, as the growth horizon for the solar industry is still quite young.

This article first appeared on GuruFocus.