Is First Solar Still a Value Opportunity After 41% Rally and New Utility Contracts?

• Thinking about whether First Solar could be a hidden gem, or if the big run-up is already behind us? You are not alone in wondering if today's price actually reflects the real value.
• The stock has soared lately, jumping 9.6% in the last week, 14.2% over the past month, and it is now up an impressive 40.9% year-to-date.
• Momentum picked up after the company landed new utility-scale solar contracts and lawmakers in Washington moved closer to passing clean energy incentives. These recent developments have fueled optimism about First Solar's long-term market position and future demand.
• Right now, First Solar scores a solid 5 out of 6 on our valuation checks, which hints at some compelling value. As we dig into multiple valuation approaches, keep in mind that there is an even better way to get the full picture coming up at the end of this article.

Find out why First Solar's 21.7% return over the last year is lagging behind its peers.

Approach 1: First Solar Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting those figures back to today’s value, taking into account the time value of money. This method offers a forward-looking measure of what the business is actually worth based on its ability to generate cash.

For First Solar, the latest reported Free Cash Flow (FCF) is negative, at -$22.4 Million. However, analysts forecast the company will quickly swing into positive territory, projecting FCF of $1.4 Billion in 2026 and continuing to grow substantially, reaching close to $4 Billion by 2029. Only the initial years are based on direct analyst estimates; projections further out are modeled using industry assumptions and extrapolation.

By aggregating and discounting these future cash flows, the DCF model arrives at an intrinsic value per share of $480.73. This figure is around 45.4% higher than where the stock is currently trading, suggesting First Solar is significantly undervalued according to this analysis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests First Solar is undervalued by 45.4%. Track this in your watchlist or portfolio, or discover 840 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for First Solar.

Approach 2: First Solar Price vs Earnings

The Price-to-Earnings (PE) ratio is a go-to valuation tool for profitable companies like First Solar, as it relates what investors are willing to pay today for a dollar of the company’s earnings. It is especially useful for businesses with strong, predictable profits, providing a simple way to compare relative value.

Growth expectations and perceived risk heavily influence what counts as a fair PE. Companies with strong growth prospects or lower risk profiles typically command a higher ratio, while slower-growing or riskier firms tend to trade at lower multiples.

First Solar currently trades at a PE of 20.1x. For context, the average PE ratio in the Semiconductor industry is 35.8x, and First Solar’s peer group averages 39.3x. At first glance, this suggests the stock is attractively priced compared to its sector and competitors.

Simply Wall St's proprietary "Fair Ratio" refines this analysis by adjusting for specific company factors like earnings growth, profit margins, market cap, and risk profile. Unlike simple comparisons to generic industry averages or peer multiples, the Fair Ratio captures the nuances that make each business unique.

For First Solar, the Fair Ratio stands at 38.2x. That means, relative to what would be justified by its growth, profitability, and risk factors, First Solar’s current PE is significantly lower, pointing to an undervaluation on this measure.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your First Solar Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply the story you believe about a company’s future, with your own assumptions about its earnings growth, profit margins, and risks, brought together with the numbers to produce your estimate of fair value.

With Narratives, investors connect what they know or believe about a company to a financial forecast and then to a clear fair value, all in an intuitive, step-by-step way. Narratives are easy to explore and create on the Simply Wall St Community page, already used by millions of investors seeking smarter decisions.

These dynamic, living stories help you decide when to buy or sell: by comparing your estimated fair value to the current price, you can see if the market is undervaluing or overvaluing First Solar according to your view, not just the crowd’s. Plus, Narratives automatically update as new news or earnings roll in, keeping your view current.

For example, one investor may build a bullish Narrative for First Solar based on strong U.S. policy support and see a fair value as high as $287. Another more cautious investor may factor in policy risks and industry challenges and arrive at only $100, helping each act confidently on their unique perspective.

Do you think there's more to the story for First Solar? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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