First Solar Inc (FSLR, Financial) has recently shown a significant daily gain of 10.78%, with an impressive three-month gain of 93.67%. Despite these gains, a crucial question arises: Is the stock significantly overvalued? With an Earnings Per Share (EPS) of 9.54, this analysis delves into the intrinsic value of First Solar, aiming to provide investors with a clear perspective on its current market valuation. Read on to understand whether First Solar stands as a prudent investment in light of its GF Value.
Company Overview
First Solar designs and manufactures solar photovoltaic panels and modules, primarily for utility-scale development projects. Utilizing thin-film technology, First Solar has established itself as the world's largest manufacturer of thin-film solar modules, with production facilities in Vietnam, Malaysia, the United States, and India. The company's market cap stands robust at $29.60 billion, with sales reaching $3.60 billion. Comparing the current stock price of $276.74 to the GF Value of $181.27 reveals a significant discrepancy, suggesting that the stock might be overvalued.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true intrinsic value of a stock. It is calculated based on historical trading multiples like PE Ratio, PS Ratio, and others, adjusted by GuruFocus based on the company's past performance and growth, alongside future business performance estimates. Currently, First Solar's stock price significantly exceeds its GF Value, indicating an overvaluation that could potentially lead to poorer future returns.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to avoid potential capital loss. First Solar's cash-to-debt ratio of 2.92 ranks better than 57.63% of its industry peers, reflecting a strong balance sheet. This financial stability is further affirmed by GuruFocus with a financial strength rating of 9 out of 10.
Profitability and Growth Prospects
First Solar has maintained profitability over the past decade, with an operating margin of 31.14%, ranking higher than 95.85% of its industry counterparts. The company's 3-year average annual revenue growth rate stands at 6.7%, while its EBITDA growth rate is an impressive 29.8%. These figures highlight First Solar's capability to sustain profitable growth, enhancing its appeal to investors.
Value Creation Analysis: ROIC vs. WACC
Comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) provides insight into how effectively First Solar is generating value. With an ROIC of 14.81% surpassing the WACC of 13.11%, First Solar is successfully creating value for its shareholders.
Conclusion
Despite First Solar's strong financial health and profitability, its current market price significantly exceeds its GF Value, indicating that the stock is overvalued. Investors should consider this valuation gap when making investment decisions. For further details on First Solar's financial health and stock performance, explore 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.
