First Solar (FSLR): A Comprehensive Analysis of Its Market Valuation

Is the Solar Power Giant Significantly Overvalued? Let's Dive Deep Into Its Financials

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In the current trading session, First Solar Inc (FSLR, Financial) experienced a daily loss of -4.93%, with a 3-month loss of -27.43%. Its Earnings Per Share (EPS) stands at 1.46. Given these figures, the question arises: is the stock significantly overvalued? This detailed analysis aims to answer this question and provide an in-depth look at the company's financial health and future prospects.

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's innovative solar modules use cadmium telluride to convert sunlight into electricity, a process known as thin-film technology. With production lines in Vietnam, Malaysia, the United States, and India, First Solar stands as the world's largest thin-film solar module manufacturer.

Currently, First Solar's stock price stands at $143.7, which is significantly higher than its GF Value of $104.57. This discrepancy prompts a deeper exploration of the company's intrinsic value.

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Understanding GF Value

The GF Value is a proprietary valuation model that estimates the current intrinsic value of a stock. It factors in historical trading multiples, an adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value.

According to the GF Value, First Solar (FSLR, Financial) is significantly overvalued. The stock's fair value is calculated based on historical multiples, an internal adjustment factor based on past business growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns.

Given that First Solar's stock is significantly overvalued, its long-term return is likely to be much lower than its future business growth.

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Financial Strength

When investing, it's crucial to assess the financial strength of a company. Companies with poor financial strength pose a higher risk of permanent loss. By examining the cash-to-debt ratio and interest coverage, one can gain insight into a company's financial health. First Solar has a cash-to-debt ratio of 3.9, better than 60.8% of companies in the Semiconductors industry, indicating strong financial strength.

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Profitability and Growth

Investing in profitable companies carries less risk, especially if the company has demonstrated consistent profitability over the long term. First Solar has been profitable for 6 out of 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 3.4% is worse than 61.18% of companies in the Semiconductors industry, indicating fair profitability .

Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of First Solar is -5.5%, ranking worse than 83.18% of companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate is 36.7%, ranking better than 68.09% of companies in the industry, indicating strong growth .

ROIC vs. WACC

Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) can provide insight into 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. A higher ROIC than WACC indicates a profitable company. For the past 12 months, First Solar's ROIC is 1.88, and its WACC is 11.45.

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Conclusion

In conclusion, First Solar (FSLR, Financial) appears to be significantly overvalued. Despite its strong financial condition and fair profitability, the stock's current market price exceeds its estimated intrinsic value. Its growth ranks better than 68.09% of companies in the Semiconductors industry. To learn more about First Solar's financials, 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.

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