First Solar Inc (FSLR, Financial) experienced a daily loss of -5.97%, and a 3-month loss of -33.9%. With an Earnings Per Share (EPS) of 1.46, the question arises: is the stock modestly overvalued? This article aims to provide a comprehensive analysis of First Solar's valuation. We encourage you to continue reading for a deeper understanding of this topic.
Company Introduction
First Solar Inc designs and manufactures solar photovoltaic panels, modules, and systems for utility-scale development projects. It uses 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. The current stock price is $134.71, compared to the GF Value of $104.82, suggesting the stock may be modestly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, the GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
First Solar (FSLR, Financial) appears to be modestly overvalued based on the GF Value calculation. With its current price of $134.71 per share and a market cap of $14.40 billion, the stock's long-term return is likely to be lower than its business growth due to its relative overvaluation.
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Financial Strength Analysis
Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Therefore, it is crucial to assess a company's financial strength before investing. One effective way to do this is by examining the cash-to-debt ratio and interest coverage. First Solar has a cash-to-debt ratio of 3.9, which is better than 60.91% of companies in the Semiconductors industry. This indicates that First Solar's financial strength is strong.
Profitability and Growth
Investing in profitable companies poses less risk, especially those that have demonstrated consistent profitability over the long term. First Solar, with its profitability ranking of 6 out of 10, has been profitable for 6 out of the past 10 years. However, its operating margin of 3.4% ranks worse than 61.18% of companies in the Semiconductors industry.
Another important factor in the valuation of a company is its growth . Companies that grow faster create more value for shareholders, especially if that growth is profitable. First Solar's average annual revenue growth is -5.5%, which ranks worse than 83.18% of companies in the Semiconductors industry. However, its 3-year average EBITDA growth of 36.7% ranks better than 68.22% 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) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while 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 exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, First Solar's ROIC was 1.88, while its WACC was 11.32.
Conclusion
In conclusion, First Solar (FSLR, Financial) appears to be modestly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 68.22% of companies in the Semiconductors industry. For more information about First Solar stock, you can 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.
