First Solar Inc (FSLR, Financial) has experienced a daily loss of -5.58% and a three-month loss of -10.31%. With an Earnings Per Share (EPS) of 1.46, the question arises: is the stock significantly overvalued? This article delves into the valuation analysis of First Solar (FSLR) to provide a comprehensive insight.
Company Introduction
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, a process known as thin-film technology. As the world's largest thin-film solar module manufacturer, First Solar has production lines in Vietnam, Malaysia, the United States, and India.
With the stock price at $199.64 per share, it significantly exceeds the GF Value of $98.5, suggesting that First Solar (FSLR, Financial) may be overvalued. This valuation analysis integrates financial assessment with essential company details to offer a profound exploration of the company's value.
Summarizing GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, an internal adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
First Solar's stock is considered significantly overvalued according to GuruFocus' valuation method. With its current price of $199.64 per share, First Solar's stock is significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. First Solar has a cash-to-debt ratio of 3.9, ranking better than 60.99% of companies in the Semiconductors industry. Based on this, GuruFocus ranks First Solar's financial strength as 9 out of 10, indicating a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. First Solar has been profitable for 6 of the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and Earnings Per Share (EPS) of $1.46. Its operating margin is 3.39%, which ranks worse than 62.38% of companies in the Semiconductors industry. Overall, GuruFocus ranks First Solar's profitability at 6 out of 10, indicating fair profitability.
One of the most crucial factors in a company's valuation is growth. 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%, ranking worse than 82.56% of companies in the Semiconductors industry. However, the 3-year average EBITDA growth is 36.7%, ranking better than 68.18% of companies in the industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, First Solar's ROIC is 1.88, and its WACC is 11.14.
Conclusion
In summary, the stock of First Solar (FSLR, Financial) is believed 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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