In the hunt for investment chances, many investors use systematic filtering methods to find stocks that may be selling for less than their true worth. One example is the "Decent Value" filter, which aims to mix chance with carefulness. This plan selects for firms that are basically priced low by the market, as shown by a good valuation score, and also show steady basic business soundness, reliable earnings, and good expansion. The aim is to locate possible deals that are not flawed companies; firms that are low-priced for a cause, but instead those that are monetarily secure and enlarging, yet missed or briefly not preferred. This way fits with central value investment ideas, where the buffer is given not only by a low cost, but by the firm's built-in firmness.
A stock that recently came up through this kind of filtering is First Solar Inc (NASDAQ:FSLR), a top American maker of solar panels. The firm's basic picture gives a strong case for investors examining the mix of value and quality.
Valuation: The Base of the Idea
The main draw for a value-focused filter is a stock's valuation numbers. First Solar's present valuation looks clearly appealing compared to both its field and the wider market. According to ChartMill's basic study, the stock gets a Valuation Score of 7 out of 10, meaning it is valued lower than many similar firms.
- Price-to-Earnings: While its normal P/E ratio of 20.95 might look high alone, it is much lower than 89% of firms in the Semiconductors & Semiconductor Equipment field, where average multiples are high from chip makers. More revealing is its Forward P/E of 11.86, which is lower than 98% of its field rivals and rests under the S&P 500 average.
- Cash Flow & Enterprise Value: The stock also shows value on other main multiples. Its Enterprise Value to EBITDA ratio is lower than 86% of the field, and its Price to Free Cash Flow ratio is lower than almost 70% of rivals.
This lower pricing is the first draw for a value investor. It hints the market may be using a harsh reduction to the solar field or First Solar in particular, possibly making a difference between its market price and its true business worth.
Financial Health: Checking the Base
A low valuation by itself is not enough; a firm must be on firm ground to steer clear of the dangers of a flawed company. First Solar's Financial Health Score of 5 out of 10 shows a varied but mostly acceptable state. The firm displays high ability to pay debts, a key point for long-term investors looking for a buffer.
- Its Debt-to-Equity ratio is a small 0.06, showing almost no use of debt funding and doing better than 61% of the field.
- The firm could pay all its debt in just 1.28 years using its present free cash flow, a very good sign of monetary room.
- An Altman-Z score of 5.60 firmly puts the firm outside any short-term failure risk.
Points of worry are in cash availability, with Current and Quick ratios that are below many field rivals. Still, given its good cash creation and low debt, these numbers do not show close trouble but rather a point for investors to watch.
Profitability: The Driver of Worth Building
For a value stock to reach its possibility, it must earn money. First Solar does well here, getting a Profitability Score of 7. The firm turns sales into earnings at a high rate, which helps support future cash flows, a key part in true worth estimates.
- The firm has a strong Profit Margin of 27.73% and an Operating Margin of 29.81%, doing better than about 86% and 90% of its field, in order.
- Returns on capital are good, with a Return on Invested Capital (ROIC) of 11.26% that beats 84% of rivals. This shows leaders are successfully using capital to make profits.
- Key, these margins have been getting better over recent years, hinting at positive business action and price strength.
This amount of profitability is needed. It gives the earnings force that, when paired with a low valuation, can lead to major investor gains if the market re-values the stock nearer to its group.
Growth: The Driver for Re-valuing
Continued growth can work as a driver to close the valuation difference. First Solar's Growth Score of 7 shows good speed and hopeful outlooks, moving it past a still "value" story.
- Past Results: Income grew over 31% in the last year, while Earnings Per Share (EPS) has grown at a high average yearly rate of almost 53% over recent years.
- Future Hopes: Experts plan continued good growth, with EPS expected to rise by over 25% yearly and Income by 13% on average in the coming years.
This growth picture is key. It shows the firm is working in a growing market (renewable energy) and doing well. For a value investor, growth at a fair price (GARP) improves the investment idea by giving a way for the business, and possibly the stock, to expand into a higher valuation.
End: A Strong Mix for Value Investors
First Solar gives a picture that fits closely with a strict value-seeking plan. It is not only a numerically low-priced stock; it is a profitable, enlarging firm with a very strong balance sheet that is selling at a major discount to its field. The mix of a high Valuation Score with good marks in Profitability and Growth hints the market may be under-pricing the firm's future cash flow possibility. While risks native to the solar field and making field stay, the basic information points to a stock that has passed a strict filter for decent value.
For investors curious about finding other firms that meet similar rules of good valuation paired with decent basics, you can see the Decent Value Stocks filter on ChartMill.
Disclaimer: This article is for information only and does not make up financial guidance, a suggestion, or a deal or request to buy or sell any securities. The study is based on present information and may change. Investing has risk, including the possible loss of original money. Always do your own study and think about talking with a skilled financial guide before making any investment choices.
