First Solar Reports Strong Year-to-Date Gains Despite Q1 Earnings Shortfall
First Solar (NASDAQ: FSLR) has achieved a 9% year-to-date gain as of May 13, outperforming the S&P 500’s growth and drawing renewed interest from investors focused on renewable energy. Although the company’s Q1 earnings fell short of expectations, reporting earnings per share of $1.95 compared to the anticipated $2.50, and revenue of $844.57 million versus a forecast of $866.19 million, there are positive signs. First Solar has improved its gross margin to 41%, an increase from 37% in the previous period. The company is prioritizing domestic manufacturing expansion and advancing its proprietary CURE technology.
Moreover, its competitive advantage is strengthened by utilizing cadmium telluride thin-film solar modules along with a fully integrated supply chain. Despite facing near-term challenges, First Solar remains optimistic about its long-term outlook, especially within the U.S. market, where electricity demand is expected to rise significantly.
Valuation of First Solar Compared to the S&P 500
First Solar currently presents a compelling investment opportunity at its price of around $190. The stock’s valuation remains attractive, especially when assessed against recent operating performance and its overall financial condition. Our analysis of key metrics such as Growth, Profitability, Financial Stability, and Downturn Resilience indicates that the company is performing strongly.
When comparing First Solar’s valuation to the broader market, it appears favorably priced. The company has a price-to-sales (P/S) ratio of 3.5, which suggests that investors pay less per dollar of sales than for many competitors in the S&P 500, making it a potentially lucrative addition to an investment portfolio.
Photo by Michael_Pointner on Pixabay
First Solar’s Financial Health: A Deep Dive into Performance Metrics
Valuation Overview
First Solar’s current financial ratios indicate strong value compared to the S&P 500:
- Price-to-earnings (P/E) ratio stands at 16.4 versus the S&P 500’s 24.5.
- Price-to-free cash flow (P/FCF) ratio is 12.1, compared to 17.6 for the benchmark.
- Price-to-sales (P/S) ratio is approximately 2.8 against the S&P 500.
Recent Revenue Growth
First Solar has experienced significant revenue growth over the past few years:
- The company achieved an average revenue growth rate of 14.3% over the last three years, compared to 6.2% for the S&P 500.
- In the last year, revenues surged by 26.7%, increasing from $3.3 billion to $4.2 billion (S&P 500 grew by 5.3%).
- Quarterly revenues also rose by 6%, reaching $855 million, up from $794 million a year earlier (S&P 500 saw a 4.9% improvement).
Profitability and Margins
First Solar shows robust profitability metrics:
- Operating income for the last four quarters reached $1.4 billion, translating to an operating margin of 33.1%, significantly above the S&P 500’s 13.1%.
- The operating cash flow (OCF) during this period was $1.2 billion, reflecting a high OCF margin of 29.0%, compared to 15.7% for the S&P 500.
- Net income was $1.3 billion, indicating a net income margin of 30.7%, which is considerably higher than the S&P 500’s 11.3%.
Financial Stability Assessment
First Solar’s balance sheet presents a solid picture of financial health:
- As of the most recent quarter, debt stood at $719 million, against a market capitalization of $17 billion, leading to a very low debt-to-equity ratio of 4.9% versus the S&P 500’s 21.5%.
- Cash and cash equivalents comprised $1.8 billion of the total $12 billion in assets, yielding a cash-to-assets ratio of 14.8%, compared with 15.0% for the S&P 500.
Resilience of FSLR Stock During Downturns
FSLR has shown vulnerability during recent market downturns, underperforming the S&P 500:
- During the 2022 inflation shock, FSLR stock declined 43.5% from a high of $116.31 to $65.70, while the S&P 500 fell 25.4%. The stock recovered its previous peak by August 25, 2022. It has since risen to a high of $300.71 in June 2024, now trading around $190.
- In the COVID-19 pandemic of 2020, the stock dropped 49.1%, from $59.32 to $30.20, compared to the S&P 500’s 33.9% decline. It regained its pre-crisis peak by July 14, 2020.
- During the 2008 financial crisis, FSLR stock fell 72.0%, from $311.14 to $87.23, while the S&P 500 dropped 56.8%. FSLR has yet to recover to its peak from that period.
Conclusion and Overall Assessment
First Solar’s performance across various metrics can be summarized as follows:
- Growth: Extremely Strong
- Profitability: Very Strong
- Financial Stability: Extremely Strong
- Downturn Resilience: Weak
- Overall Assessment: Very Strong
Due to its attractive valuation and solid performance metrics, FSLR appears to be an appealing investment option for consider. However, investors should remain cautious about the inherent risks of investing in individual stocks.
The views and opinions expressed herein belong to the author and do not necessarily reflect those of Nasdaq, Inc.
