First Solar Inc (FSLR, Financial) has seen a daily gain of 2.97% and a three-month loss of 23.01%. With an Earnings Per Share (EPS) (EPS) of 1.46, the question arises: is the stock significantly overvalued? This article provides an in-depth valuation analysis to answer that question. Let's delve into the details.
First Solar Inc (FSLR, Financial), a leading manufacturer of solar photovoltaic panels, modules, and systems, is primarily engaged in utility-scale development projects. The company's solar modules convert sunlight into electricity using cadmium telluride, a 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 a stock price of $148.08, First Solar's valuation significantly exceeds its GF Value of $103.17, indicating potential overvaluation. This initial comparison between the stock price and the GF Value sets the stage for a deeper exploration of the company's intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value.
First Solar (FSLR, Financial) is deemed significantly overvalued based on GuruFocus' valuation method. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment factor based on past business growth, and future business performance estimates. If the stock price significantly exceeds the GF Value Line, the stock may be overvalued, potentially leading to poor future returns. Conversely, if the stock price is significantly below the GF Value, the stock may be undervalued, potentially leading to higher future returns. Currently, at $148.08 per share, First Solar stock is significantly overvalued.
Given First Solar's significant overvaluation, the long-term return of its stock is likely to be much lower than its future business growth.
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide insights into a company's financial strength. With a cash-to-debt ratio of 3.9, First Solar outperforms 60.51% of 904 companies in the Semiconductors industry. Overall, First Solar's financial strength is strong, scoring 9 out of 10.
Profitability and Growth
Investing in profitable companies, particularly those with consistent long-term profitability, is generally less risky. High-profit-margin companies are typically safer investments than those with low profit margins. Over the past ten years, First Solar has been profitable six times. In the past twelve months, the company reported $3 billion in revenue and an EPS of $1.46. With an operating margin of 3.39%, First Solar ranks below 61.32% of 954 companies in the Semiconductors industry. Overall, First Solar's profitability ranks 6 out of 10, indicating fair profitability.
Growth is a critical factor in a company's valuation. GuruFocus research has found a close correlation between growth and the long-term performance of a company's stock. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the company's value will decrease. First Solar's 3-year average revenue growth rate is below 83.07% of 874 companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate of 36.7% ranks above 68.17% of 776 companies in the Semiconductors industry.
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) with 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. Over the past 12 months, First Solar's ROIC is 1.88, and its WACC is 11.16.
In conclusion, First Solar (FSLR, Financial) stock appears to be significantly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 68.17% of 776 companies in the Semiconductors industry. To learn more about First Solar stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.