First Solar (FSLR)'s True Worth: A Comprehensive Analysis of Its Market Value

Is First Solar (FSLR) Significantly Overvalued? An In-Depth Exploration of its Intrinsic Value

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First Solar Inc (FSLR, Financial) experienced a daily loss of -2.54%, with a 3-month loss of -6.9%, and an Earnings Per Share (EPS) of 1.46. Despite these figures, the question remains: is the stock significantly overvalued? In the following analysis, we delve into First Solar's valuation, providing an in-depth look at its intrinsic value.

Company Introduction

First Solar Inc designs and manufactures solar photovoltaic panels, modules, and systems for utility-scale development projects. As the world's largest thin-film solar module manufacturer, First Solar utilizes cadmium telluride to convert sunlight into electricity. With production lines in Vietnam, Malaysia, the United States, and India, it's a global leader in the solar industry. However, with a current stock price of $181.74, significantly higher than the GF Value of $100.11, one might question if the stock is overvalued.

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Understanding GF Value

The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.

According to this valuation method, First Solar (FSLR, Financial) appears to be significantly overvalued. With a market cap of $19.40 billion, the stock's current price of $181.74 per share is well above the GF Value Line. This indicates that the stock may be overvalued and its future returns may be poor. Conversely, if the stock's share price were significantly below the GF Value Line, the stock might be undervalued, suggesting higher future returns.

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Financial Strength

Investing in companies with low financial strength can 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 60.22% of 895 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.

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Profitability and Growth

Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. First Solar has been profitable 6 over 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 61.19% of 938 companies in the Semiconductors industry. Overall, the profitability of First Solar is ranked 6 out of 10, indicating fair profitability.

Growth is a critical factor in a company's valuation. First Solar's 3-year average revenue growth rate is worse than 82.97% of 863 companies in the Semiconductors industry. However, First Solar's 3-year average EBITDA growth rate is 36.7%, which ranks better than 68.19% of 767 companies in the Semiconductors industry.

ROIC vs WACC

Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. 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 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 10.74.

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Conclusion

In conclusion, the stock of First Solar (FSLR, Financial) appears to be significantly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 68.19% of 767 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