For investors looking to balance the search for growth with fiscal care, the "Growth at a Reasonable Price" (GARP) method offers a practical middle ground. This method tries to find companies that are increasing at an above-average pace but are not priced at extreme levels, steering clear of paying too much for future prospects. A useful way to apply this is by looking for stocks with good fundamental growth marks, firm profitability and financial soundness, and a price that does not seem too high. This process helps find companies where the growth narrative is backed by the basic business facts and is not only seen in a high stock price.
FIRST SOLAR INC (NASDAQ:FSLR) recently appeared from such an "Affordable Growth" filter. As a top American maker of thin-film solar modules, the company works where energy change and domestic manufacturing policy meet, topics that have created notable investor attention. The fundamental review from ChartMill, which you can examine in detail here, gives FSLR a total score of 6 out of 10. More key for the GARP method, it shows a particular picture: firm growth combined with a good price, along with acceptable marks for profitability and soundness.
A Profile of Strong Growth
The central idea of affordable growth investing is, expectedly, growth. A company must show a clear capacity to increase its earnings and revenue. First Solar’s fundamentals suggest it is doing this, receiving a Growth mark of 7.
- Past Performance: The company has displayed very strong past growth in Earnings Per Share (EPS), averaging a notable 52.90% each year over recent years. Revenue also rose by 31.16% over the last year.
- Future Expectations: The growth path is projected to continue. Analyst forecasts indicate an average yearly EPS growth of 25.14% and revenue growth of 13.30% in the next years.
- Positive Change: Importantly, the review shows that the revenue growth rate is increasing, hinting that future growth could exceed the past trend.
This mix of strong past results and a positive future view is vital for a GARP choice, as it gives proof that the growth is real and likely to continue.
Valuation: The "Reasonable Price" Point
Finding growth is only part of the task, making sure you are not paying too much for it is the other key part. This is where First Solar’s picture becomes especially notable, as it gets a high Valuation mark of 8. The information implies the stock's current price may not completely account for its growth outlook.
- Good Multiples: While the standard Price/Earnings (P/E) ratio of 17.32 might look high alone, it is viewed as less expensive than 93.81% of similar companies in the Semiconductors & Semiconductor Equipment industry. More indicative is the Forward P/E ratio of 9.84, which is much lower than the industry average and the wider S&P 500.
- Cash Flow and EBITDA: The valuation narrative is supported by other measures. The company’s Enterprise Value to EBITDA and Price/Free Cash Flow ratios are less expensive than 92.04% and 79.65% of industry peers, in turn.
- Growth Adjustment: The low PEG ratio, which modifies the P/E for growth, shows the stock's price looks quite low when its earnings increase is considered.
For an affordable growth method, this difference, strong growth measures paired with price multiples that are low compared to both the industry and the market, is the main sign. It suggests the market may be pricing the company’s future earnings potential too low.
Supporting Fundamentals: Profitability and Health
A growth narrative based on weak finances is a risky idea. The GARP method reduces this by needing fair scores in profitability and financial health, confirming the company has the operational force and balance sheet to maintain its increase. First Solar gets a 7 for Profitability and a 5 for Health.
- Profitability Force: The company does well in margins, with an Operating Margin of 29.81% that beats almost 90% of its industry. Its Return on Invested Capital (ROIC) of 11.26% is also in the high group of the sector, showing efficient use of capital.
- Financial Health Points: The Health score of 5 shows a varied image. On the good side, the company has a very low Debt/Equity ratio of 0.06 and a strong Altman-Z score, indicating good solvency and low bankruptcy risk. The main focus is on liquidity, where its Current and Quick ratios are lower than many industry peers, which investors should note.
These marks verify that the company’s growth is not being reached through high debt or by losing profitability. The firm profitability supplies the means for reinvestment and increase, while the fair, if not excellent, health score implies a generally stable financial base.
Conclusion and Further Research
First Solar Inc shows an example in the affordable growth filtering idea. It shows the needed mix wanted by GARP investors: notable growth in both the past and expected future, a price that seems fair, even good, within its high-growth field, and fundamental support from respectable profitability and a generally solid financial state. The gap between its high growth and relatively moderate price multiples is exactly what filters like this are made to find.
It is key to recall that a filter gives a beginning for study, not a final answer. The liquidity measures in the health group deserve notice, and as with any company in the renewable energy field, its results are linked to policy, commodity prices, and competitive factors.
If the picture of First Solar fits your investment method, you can look at other companies that meet similar rules. Our set "Affordable Growth" filter is refreshed often and can be reached to see the present list of passing stocks. Click here to see more results from this filter.
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Disclaimer: This article is for information only and does not form financial advice, a suggestion to buy or sell any security, or a support of any investment method. Investors should do their own complete study and think about their personal financial situation and risk comfort before making any investment choices.
