Markets

Dissecting the Numbers for First Solar, Inc. (FSLR) and Ultra Clean Holdings, Inc. (UCTT)

First Solar, Inc. (NASDAQ:FSLR) and Ultra Clean Holdings, Inc. (NASDAQ:UCTT) are the two most active stocks in the Semiconductor – Specialized industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use Return on Investment (ROI) to measure this. FSLR’s ROI is -10.40% while UCTT has a ROI of 4.80%. The interpretation is that UCTT’s business generates a higher return on investment than FSLR’s.

Cash Flow 



Earnings don’t always accurately reflect the amount of cash that a company brings in. FSLR’s free cash flow (“FCF”) per share for the trailing twelve months was -2.60. Comparatively, UCTT’s free cash flow per share was +0.24. On a percent-of-sales basis, FSLR’s free cash flow was -9.2% while UCTT converted 0% of its revenues into cash flow. This means that, for a given level of sales, UCTT is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. FSLR has a current ratio of 6.80 compared to 2.20 for UCTT. This means that FSLR can more easily cover its most immediate liabilities over the next twelve months. FSLR’s debt-to-equity ratio is 0.06 versus a D/E of 0.24 for UCTT. UCTT is therefore the more solvent of the two companies, and has lower financial risk.




Valuation

FSLR trades at a forward P/E of 37.16, a P/B of 0.95, and a P/S of 1.88, compared to a forward P/E of 12.44, a P/B of 3.93, and a P/S of 1.32 for UCTT. FSLR is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. FSLR is currently priced at a -10.54% to its one-year price target of $53.58. Comparatively, UCTT is 1.94% relative to its price target of $29.40. This suggests that FSLR is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for FSLR and 2.20 for UCTT, which implies that analysts are more bullish on the outlook for FSLR.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. FSLR has a beta of 1.88 and UCTT’s beta is 1.28. UCTT’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. FSLR has a short ratio of 4.82 compared to a short interest of 1.96 for UCTT. This implies that the market is currently less bearish on the outlook for UCTT.

Summary

Ultra Clean Holdings, Inc. (NASDAQ:UCTT) beats First Solar, Inc. (NASDAQ:FSLR) on a total of 9 of the 13 factors compared between the two stocks. UCTT higher liquidity, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, UCTT is the cheaper of the two stocks on an earnings and sales basis, Finally, UCTT has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Does The Blackstone Group L.P. (BX) Present Much U... The Blackstone Group L.P. (NYSE:BX) is in the highlights and many would want to know whether now might be a good time for it to present much upside. N...
Weatherford International plc (WFT): Checking the ... It's worth it to have a look at Weatherford International plc (NYSE:WFT) as there may be a chasm between the bulls and the bears as far as recent trad...
AMN Healthcare Services, Inc. (AMN): Does This Mov... AMN Healthcare Services, Inc. (NYSE:AMN) has recently been identified as an interesting stock but more in-depth monitoring is needed for a trade decis...
Looking at the Big Picture for Activision Blizzard... Activision Blizzard, Inc. (NASDAQ:ATVI)'s interesting series of developments are underway around the US stock market these days. Now trading with a ma...
The Fundamental Facts on Impax Laboratories (IPXL) Impax Laboratories, Inc. (NASDAQ:IPXL) is an interesting stock at present. Now trading with a market value of 1.24B, the company has a mix of catalyst...