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This High-Flying Stock is Set to Take a Double-Digit Plunge -- Sell Now

When it comes to clean energy stocks, investors get quite emotional. These stocks can be deeply loved -- or hated -- depending on whether investors see them as a panacea for the world's energy and climate woes or just a fad that is waiting to pass.

Case in point: First Solar (NASDAQ: FSLR), which has gone from investor darling to investor dud and back to a darling again, all within a few years.

Roughly a year ago, with shares slipping below $20, I noted that the company was still on the cusp of impressive earnings growth, which was in sharp contrast to a plunging stock price.

In subsequent quarters, First Solar was able to convert the doubters into believers, thanks in large part to a reiteration of a still robust profit outlook for the years ahead.

Yet I began to grow concerned that investors' newfound ardor for this stock may not be fully warranted, suggesting last month that very robust forward guidance was predicated on the company's ability to convert many of its current potential sales leads into actual customers.

By my math, First Solar was "counting on its ability to convert 80% of its current potential sales opportunities into actual orders. And in the solar business, that sales conversion rate is usually far lower, below 50%."

Since I wrote that in mid-April, shares have surged another 36%, and what recently looked like a modestly overvalued stock now looks egregiously so. And shares might return back to Earth in a matter of months.

No News Is Bad News?

First Solar released quarterly results on May 6, which was a chance for management to speak in more specific terms about how its large pipeline of sales contracts will convert into actual orders to put into backlog. CEO Jim Hughes again discussed a solid sales pipeline, but conceded that "the largest portion, about 4.8 GigaWatts (GW), is early stage, which means that the majority of these projects will have the development cycle of 12 to 24 months."

That 4.8 GW figure accounts for 87% of the company's projected sales guidance for 2014 and 2015. In other words, management needs to get busy if investors are to keep believing that 2014 and 2015 guidance is achievable.

After listening to the recent call, analysts at Goldman Sachs (NYSE: GS) concluded, "We continue to see a high bar for First Solar in 2014-2015 given targeted 20%-25% year-over-year volume growth, the bulk of which remains uncontracted, requiring a much faster bookings velocity in coming quarters to achieve."

Goldman says it sees shares pulling back to $43, but believes that much more downside exists if the sales pipeline doesn't start to bear fruit in coming quarters.

Analysts at Morgan Stanley (NYSE: MS) concur: "We need to see a significant number of large project wins with strong pricing in the next 2-3 quarters to assume sustained volume and earnings growth after 2014."

Trouble is, management has already conceded that much of the sales pipeline is early stage, and the next two to three quarters may prove to be too quiet for the likes of Morgan Stanley and others. If First Solar fails to line up any major new deals this summer, shares are likely to fall back toward the $30 mark. Even if deals are announced, it's hard to see much upside for shares from here.

Recommended Trade Setup:

-- Sell FSLR short above $45
-- Set stop-loss at $52
-- Set initial price target at $32 for a potential 29% gain in four months

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