One industry analysis notes that as much photovoltaic (PV) capacity has been installed worldwide in the last two and a half years as in the prior four decades, and capacity is expected to double again in the next two and a half years.

Source: GTM Research

As Robert notes above, the US Energy Information Agency expects solar generation to remain the fastest growing sliver of the global energy business, though it expects the doubling of current capacity to take more than a decade.

In any case, solar is likely to remain a growth industry, in large part because technological advances have brought it within hailing distance of the economic proposition of fossil fuels. In some cases, solar projects are competitive already without a subsidy — and without accounting for the cost of pollution and climate change.

Advances in photovoltaic technology and a global glut of PV manufacturing capacity have combined to drive down the cost of US solar installations by 6 to 7 percent a year over the last 15 years, according to a study from the Lawrence Berkeley National Laboratory. The same trend has obtained globally, and is likely to persist for years to come.

That’s bad news for heavily leveraged solar suppliers like Chinese solar wafer maker LDK Solar (NYSE: LDK) which is sitting on $2.8 billion in debt and courting default.  But every failure in this glutted and overly leveraged industry, and every drop in panel prices, works to the long-term advantage of the largest publicly listed solar player, which was brought to readers’ attention a month ago.

First Solar (Nasdaq: FSLR) is already generating sufficient free cash flow to build up a rock-solid balance sheet, even if it pushes the technical envelope in squeezing ever greater efficiency from its thin-film panels. The Arizona-based company is also well along in a transformation from a supplier of increasingly commoditized components to planner and builder of the massive utility-scale systems that generate the cheapest solar power.

This is a shift that plays to First Solar’s advantages while somewhat shielding it from cutthroat components competition. The company spent nearly $500 million last year to restructure after European sales took a dive following cuts in solar subsidies, and now makes the bulk of its sales in the US while targeting growth in fast-growing emerging markets.

Shares have been on a wild ride in recent years, inflating nearly tenfold from roughly current levels in 2007-8 as a speculative mania bid up the entire solar sector, and bottoming out at less than a third of the current price in the middle of last year, amid questions about the entire industry’s viability. From there, they rallied fourfold into this May, and have now dropped 33 percent from that high.

Clearly, this is a stock for those with nerves of steel. Nevertheless, a purchase at the current price should prove rewarding.  Subtracting the $1 billion in cash net of debt on its balance sheet, First Solar is being valued by the market at just 4.4 times trailing cash flow. Sales are on track to grow modestly, and margins have been expanding of late as management drives down administrative and production costs.

Unfortunately, growth increasingly fueled by large-scale projects can be lumpy, with revenue potentially delayed by permitting troubles or a decision to hold out for better prices before selling a completed installation. Such vagaries caused First Solar to badly miss Wall Street’s targets last month and nudge down its annual profit forecast as well, albeit to levels that would still have exceeded analysts’ estimates a few months earlier.

Analysts expect pro forma earnings per share to decline modestly next year, and the stock is accordingly priced at just 11 times the 2014 consensus estimate. But cash flow should, if anything, rise alongside sales and margins. First Solar continues to expect operating cash flow of $800 million to $1 billion this year, against capital spending of no more than $400 million. Net of cash on the books, the company has an enterprise value of just $2.8 billion.

The recent acquisition of complementary solar technology from General Electric (NYSE: GE) in exchange for a 1.8 percent stake in First Solar cements an increasingly important industry alliance. It will also help First Solar improve its panels’ conversion efficiency ratio (measuring the share of received energy they are able to process).  This number has crept up from 11 percent a couple of years ago to more than 13 percent currently, and First Solar is aiming for the high-teens based on its research and GE’s. Small changes in this ratio have big economic effects, since just the move from 12 to 14 will represent a 17 percent output gain from each panel.

Source: Company presentation

The thin-film cadmium-telluride technology First Solar pioneered is not quite as efficient as the crystalline-silicon alternative, but it is commensurately cheaper, requiring fewer intermediate manufacturing stages. Earlier this year, First Solar snapped up Silicon Valley startup Tetra Sun to diversify into crystalline-silicon cells that may prove a better long-term fit in the burgeoning market for small, distributed installations on the rooftops of homes and businesses.

But First Solar’s size and financial strength afford it pportunities unique to cash-flush businesses. One the company has already contemplated is hiving off some of its solar installations into a dividend-paying subsidiary, akin to the NRG Yield (NYSE: NYLD) vehicle recently successfully IPO’d by top First Solar customer NRG Energy (NYSE: NRG). Steady yielders like master limited partnerships and their corporate facsimiles have been much in demand with investors, reaping valuations much higher than First Solar’s. Utility-scale solar energy generation is a steady business well suited to throw off regular distributions.

Short interest in First Solar shares stood at 18 percent of the float as of the end of July, indicating a healthy degree of skepticism. But the two mutual funds with the largest stakes in the stock as of this spring are long-term winners with sterling track records and ratings.

Recent profit-taking has sent the stock to its rising 200-day moving average, which has so far provided support. We think this is a solid buying opportunity and are adding First Solar to our Growth Portfolio. For long-term investors, FSLR is a Buy below $45. Those concerned about short-term results will want to buy only if the stock manages to stay above its 200-day average very near the current price.