First Solar Inc (FSLR, Financial) recently suffered a daily loss of -3.63%, adding up to a 3-month loss of -11.24%. Despite these losses, the company has managed an Earnings Per Share (EPS) of 1.46. This raises the question: is First Solar (FSLR) significantly overvalued? In this article, we delve into a comprehensive valuation analysis of First Solar, providing insights into its financial health and future prospects.
Company Overview
First Solar Inc is a leading designer and manufacturer of solar photovoltaic panels, modules, and systems for utility-scale development projects. The company's solar modules use cadmium telluride, known as thin-film technology, to convert sunlight into electricity. As the world's largest thin-film solar module manufacturer, First Solar has production lines in Vietnam, Malaysia, the United States, and India.
As of September 18, 2023, First Solar (FSLR, Financial) has a stock price of $167.74, which is significantly higher than its GF Value of $101.29. This discrepancy suggests an overvaluation, which we will explore further in the article.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value, First Solar is significantly overvalued. This is based on its current stock price of $167.74 per share and a market cap of $17.90 billion. Because of this overvaluation, the long-term return of First Solar's stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before deciding to invest in its stock. With a cash-to-debt ratio of 3.9, First Solar's financial strength is better than 60.53% of 902 companies in the Semiconductors industry. This strong financial position is further evidenced by its overall financial strength rank of 9 out of 10 by GuruFocus.
Profitability and Growth
Investing in profitable companies carries less risk, especially when the company has demonstrated consistent profitability over the long term. First Solar has been profitable 6 years over the past 10 years, with revenues of $3 billion and Earnings Per Share (EPS) of $1.46 in the past 12 months. However, its operating margin of 3.39% is worse than 61.35% of 947 companies in the Semiconductors industry, ranking its profitability as fair.
Growth is a critical factor in a company's valuation. First Solar's 3-year average revenue growth rate is worse than 82.99% of 870 companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate of 36.7% ranks better than 68.35% of 774 companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) can provide insights into its profitability. For the past 12 months, First Solar's ROIC is 1.88, and its WACC is 10.82, indicating a need for improvement.
Conclusion
In conclusion, First Solar (FSLR, Financial) appears to be significantly overvalued. Despite its strong financial condition and fair profitability, the company's growth ranks better than 68.35% of 774 companies in the Semiconductors industry. For more details about First Solar's stock, you can check out its 30-Year Financials here.
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