First Solar Inc (FSLR, Financial) experienced a daily gain of 4.46%, with an Earnings Per Share (EPS) of 0.39. Despite this positive movement, the question arises: Is the stock significantly overvalued? This article provides a detailed valuation analysis to answer that question. Read on to delve into an in-depth exploration of First Solar's GF Value.
First Solar designs and manufactures solar photovoltaic panels, modules, and systems for utility-scale development projects. The company's solar modules use cadmium telluride to convert sunlight into electricity. This is commonly called thin-film technology. First Solar is the world's largest thin-film solar module manufacturer, with production lines in Vietnam, Malaysia, the United States, and India. With a current price of $207.67 per share and a market cap of $22.2 billion, First Solar's GF Value, an estimation of fair value, stands at $90.84, suggesting that the stock is significantly overvalued.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
When a stock's share price is significantly above the GF Value Line, it may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. For First Solar, the current price of $207.67 per share suggests that the stock is significantly overvalued.
Because First Solar is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength and Profitability
Investing in companies with low financial strength could result in permanent capital loss. It's crucial to review a company's financial strength before deciding to buy shares. First Solar has a cash-to-debt ratio of 6.17, which ranks better than 66.18% of companies in the Semiconductors industry. Based on this, GuruFocus ranks First Solar's financial strength as 8 out of 10, suggesting a strong balance sheet.
Companies with consistent profitability over the long term offer less risk for investors. First Solar has been profitable 6 out of the past 10 years. Over the past twelve months, the company had a revenue of $2.8 billion and Earnings Per Share (EPS) of $0.39. Its operating margin is -7.25%, which ranks worse than 79.96% of companies in the Semiconductors industry. Overall, the profitability of First Solar is ranked 6 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of First Solar is -5.5%, which ranks worse than 82.62% of companies in the Semiconductors industry. The 3-year average EBITDA growth is 36.7%, which ranks better than 68.18% of companies in the Semiconductors industry.
ROIC vs WACC
Profitability can also be evaluated by comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, First Solar's ROIC is -1.52 while its WACC came in at 11.44.
Overall, First Solar (FSLR, Financial) stock appears to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 68.18% of companies in the Semiconductors industry. To learn more about First Solar stock, you can check out its 30-Year Financials here.
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