First Solar Inc (FSLR, Financial) experienced a daily loss of 3.33% and a 3-month loss of 11.01%. With an Earnings Per Share (EPS) of 1.46, the question arises: is the stock significantly overvalued? This article aims to answer this question through a detailed valuation analysis. We invite our readers to delve into this exploration of First Solar's intrinsic value.
First Solar designs and manufactures solar photovoltaic panels, modules, and systems for utility-scale development projects. As the world's largest thin-film solar module manufacturer, it has production lines in Vietnam, Malaysia, the United States, and India. Its solar modules use cadmium telluride to convert sunlight into electricity, a method commonly referred to as thin-film technology. The company's current stock price is $185.5, significantly higher than the estimated fair value (GF Value) of $98.5, indicating a potential overvaluation. Let's delve deeper into the company's value and financial performance.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price significantly surpasses the GF Value Line, it is overvalued and likely to yield poor future returns. Conversely, if it falls significantly below the GF Value Line, its future returns are expected to be higher.
According to our GF Value calculation, First Solar (FSLR, Financial) appears significantly overvalued. With its current price of $185.5 per share and a market cap of $19.80 billion, First Solar's future returns may be lower than its future business growth due to this overvaluation.
First Solar's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to thoroughly assess a company's financial strength before purchasing its stock. One way to do this is by examining the cash-to-debt ratio, which for First Solar is 3.9. This ratio is better than 61.03% of companies in the Semiconductors industry. GuruFocus ranks First Solar's overall financial strength at 9 out of 10, indicating strong financial health.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Higher profit margins typically indicate a better investment compared to a company with lower profit margins. First Solar has been profitable for 6 out of the past 10 years. Over the past twelve months, the company generated a revenue of $3 billion and Earnings Per Share (EPS) of $1.46. Its operating margin is 3.39%, ranking lower than 62.31% of companies in the Semiconductors industry. Overall, First Solar's profitability is ranked 6 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. First Solar's 3-year average annual revenue growth rate is -5.5%, ranking lower than 82.58% of companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate is 36.7%, ranking better than 68.18% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, First Solar's ROIC was 1.88, while its WACC came in at 11.26.
In conclusion, the stock of First Solar (FSLR, Financial) appears to be significantly overvalued. Despite its strong financial condition and fair profitability, 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.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.