Fundamental Fridays: First Solar, Inc.

This being the first Fundamental Friday of 2009, I decided to highlight another first: First Solar, Inc.

First Solar, Inc. (Ticker: FSLR) designs, manufactures, and sells solar electric power modules. The company uses a proprietary thin film semiconductor technology and is headquartered in Tempe, Arizona.

With the incoming Obama administration and talk of energy independence and going green, some believe it would be a good idea to invest in solar stocks. Let’s see what the fundamentals say about FSLR:
 

Valuation measures - Data from Reuters and ADVFN Financials

Price-earnings - Compares the current market value per share to the earnings per share.  P/E ratio for FSLR: 40.60, P/E industry average: 6.00, P/E sector average: 7.43. Signal: OVERVALUED

Price-sales - Compares the current market value per share to the revenue per share.  P/S ratio for FSLR: 11.04, P/S industry average: 0.55,  P/S sector average: 0.70. Signal: OVERVALUED

Price-cash flow - Compares the current market value per share to the cash flow per share. P/CF ratio for FSLR: 34.30, P/CF industry average: 2.06, P/CF sector average: 4.04. Signal: OVERVALUED

Profitability Measures 

Return on Assets – Net income relative to total assets.  ROA for FSLR: 18.34%, ROA industry average: 1.96% 

Return on Equity – Net income relative to total equity. ROE for FSLR: 23.54%, ROE industry average: 2.51%

Profit margin – Net income relative to revenue. PM for FSLR: 27.47%, PM industry average: 2.9%

Bottom Line:  First Solar is much more profitable relative to its competitors. Its P/E, P/S and P/CF ratios are much higher and scream that this stock is overvalued. However, the stock’s ROE is nine times the industry average however the P/E ratio is less than seven times the industry average.

Based on the ratios used today, TST’s Fundamental Fridays Recommendation for First Solar: BUY

Remember: Ratios should always be evaluated relative to a company’s competitors, sector and industry averages to see how the company stacks up. Ratios should never be used as the sole basis for trading decisions. The data used is pulled from financial statements which have been known to be subject to manipulation and varying accounting practices.

Check out previous Fundamental Fridays: Nike, Amazon.com, Alcoa and Dell.