For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the First Solar, Inc. (NASDAQ:FSLR) share price. It's 335% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 74% in about a quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.
Since it's been a strong week for First Solar shareholders, let's have a look at trend of the longer term fundamentals.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the five years of share price growth, First Solar moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the First Solar share price has gained 225% in three years. During the same period, EPS grew by 25% each year. Notably, the EPS growth has been slower than the annualised share price gain of 48% over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of First Solar's earnings, revenue and cash flow.
A Different Perspective
First Solar shareholders gained a total return of 27% during the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 34% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand First Solar better, we need to consider many other factors. Take risks, for example - First Solar has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.