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Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. For example, the First Solar, Inc. (NASDAQ:FSLR) share price return of 16% over three years lags the market return in the same period. Disappointingly, the share price is down 14% in the last year.
First Solar isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last 3 years First Solar saw its revenue shrink by 22% per year. The falling revenue is arguably somewhat reflected in the lacklustre return of 5.1% per year over three years, which falls short of the market return. Profit focussed investors would generally avoid a company with falling revenue and zero profits, since it’s hard to imagine when profit might come.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
First Solar is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling First Solar stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
While the broader market gained around 3.7% in the last year, First Solar shareholders lost 14%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 2.0% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
We will like First Solar better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.