Is First Solar Stock Ripe for a Rare Post-Earnings Rally?

Should First Solar, Inc. (FSLR) turn in a positive earnings surprise, there's plenty of purchasing power to fuel a rally

Feb 15, 2017 at 10:15 AM
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While some solar stocks are reporting quarterly earnings this week, alternative energy specialist First Solar, Inc. (NASDAQ:FSLR) will step into the spotlight next Tuesday night. The stock has been a disappointment on the charts long term, shedding 45.8% of its value year-over-year at $34.18, with the 100-day moving average causing trouble. But the shares have been clawing higher since bottoming out in November, largely keeping pace with the broader S&P 500 Index (SPX). Plus, FSLR recently crossed over its 50-day moving average -- a historically bullish signal for stocks in general. Should the firm turn in a positive earnings surprise, there's plenty of fuel to spark a rally in the shares.

The brokerage bunch has taken a pessimistic view of FSLR, with 14 out of 19 analysts rating the stock a "hold" or "strong sell." That means a round of upgrades could be a boon for the stock. Short sellers seem to agree with this negative assessment, though, as these bearish bets have climbed in recent reporting periods to account for 21.5% of FSLR's available float. At the equity's typical pace of trading, it would take almost two weeks for short sellers to cover their positions -- plenty of purchasing power to potentially give the shares a boost.

Conversely, in the options pits, call buying has been popular of late. In fact, FSLR's 50-day call/put volume ratio of 2.56 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) rests just 3 percentage points from an annual high. But given the elevated level of short interest, it's possible some of this call buying has come at the hands of short sellers looking for a hedge.

From a slightly different perspective, however, near-term options traders are more put-heavy than usual. FSLR's Schaeffer's put/call open interest ratio (SOIR) of 1.05 ranks higher than 82% of the past year's readings. This includes heavy open interest at the soon-to-be front-month March 30 and 32.50 puts, which could translate into layers of options-related support in the coming weeks.

That said, traders do have reason to be skeptical of FSLR, with earnings just around the corner. After all, the stock has tended to make some hefty moves in the session subsequent to reporting. Over the past eight quarters, First Solar, Inc. (NASDAQ:FSLR) has moved higher and lower an equal number of times in the post-earnings session, averaging a single-day swing of 10.8%. In each of the last three occasions, though, the shares have resolved to the downside, with a typical one-day loss of 11.4%.

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