Is First Solar Inc (FSLR) Significantly Overvalued? A Comprehensive Valuation Analysis

Unveiling the intrinsic value of First Solar Inc (FSLR) amidst fluctuating market trends

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Despite a daily loss of -2.93% and a 3-month decline of -8.06%, First Solar Inc (FSLR, Financial) reported an Earnings Per Share (EPS) (EPS) of 1.46. This raises the question: Is the stock significantly overvalued? To answer this, we delve into a comprehensive valuation analysis of First Solar (FSLR). We invite you to read on and explore our findings.

Company Overview

First Solar Inc (FSLR, Financial) is a global leader in the design and manufacture of solar photovoltaic panels, modules, and systems for utility-scale development projects. The company uses cadmium telluride, a thin-film technology, to convert sunlight into electricity. With production lines in Vietnam, Malaysia, the United States, and India, First Solar stands as the world's largest thin-film solar module manufacturer.

At a stock price of $193.97, First Solar (FSLR, Financial) has a market cap of $20.70 billion, significantly higher than its GF Value of $98.5. This discrepancy forms the basis of our valuation analysis.

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Understanding the GF Value

The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's fair value.

First Solar (FSLR, Financial) appears to be significantly overvalued based on our GF Value. This conclusion is derived from three key factors: historical multiples, an internal adjustment factor based on the company's past business growth, and analyst estimates of future business performance. If the stock's price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.

Considering First Solar's current price of $193.97 per share and a market cap of $20.70 billion, the stock appears to be significantly overvalued. Consequently, the long-term return of its stock is likely to be much lower than its future business growth.

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Financial Strength

Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. First Solar has a cash-to-debt ratio of 3.9, ranking better than 61.03% of companies in the Semiconductors industry. The overall financial strength of First Solar is 9 out of 10, indicating strong financial health.

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Profitability and Growth

Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Companies with high profitability margins are typically safer investments than those with low profit margins. First Solar has been profitable 6 out of the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and an Earnings Per Share (EPS) (EPS) of $1.46. Its operating margin is 3.39%, ranking worse than 62.31% of companies in the Semiconductors industry. Overall, First Solar's profitability is ranked 6 out of 10, indicating fair profitability.

Long-term stock performance is closely correlated with growth, 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%, ranking worse than 82.58% 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 Semiconductors industry.

ROIC vs WACC

Evaluating a company's profitability can also be achieved by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (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 was 1.88 while its WACC came in at 11.14.

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Conclusion

In conclusion, the stock of First Solar Inc (FSLR, Financial) 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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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure