While we are pleased to see the above companies getting some attention, we’re struck that one of the main drivers of performance has simply been a change in the mood of investors.
The impact of emotion is driving many to pay too much attention to the short term and thus overlook businesses with solid fundamentals and valuations. Instead of chasing an investment horizon of just a few weeks or months, we take the long view and stick to our time-tested 10 Principles of Value Investing™.
First Solar, Inc. (FSLR) is a recent addition and an example of what our active, fundamental approach has unearthed. The company is a U.S.-based, pure-play manufacturer of solar power systems and modules. Due to what we believe to be a short-term disappointment in results, the business was marked down in price by 40%.
The solar energy industry, in our view, is poised for strong growth in the coming years due to an aggressive push for renewable energy as well demand dynamics that now favor producers. Against this backdrop of improved pricing power, we believe First Solar is well-positioned to grow earnings by as much as 80% year-over-year for 2019.
First Solar also boasts a rock-solid balance sheet with nearly $20 per share of net cash on the books. Yet despite secular tailwinds for demand—including state mandated renewable energy requirements for utilities—the stock trades at just 1.1X book value.
We see a long growth runway for the company.
The fact that we continue to find exceptional valuations in the midst of a decade-long bull run is a remarkable reminder of the value of an active bottom-up approach to investing. We remain unwavering in our focus finding these compelling opportunities and believe recent outperformance highlights the potential for the names in the portfolio.
Our work in finding deeply out of favor companies priced well below market multiples is reflected in a portfolio that is trading at a forward price/earnings multiple of less than 12X versus an average for the broader market of 17X. We believe this unwavering valuation-first approach offers meaningful opportunity for capital appreciation over the long term.
Small Cap Value Composite Valuations
Source: FactSet Research Systems Inc., Russell®, Standard & Poor’s, and Heartland Advisors, Inc., as of 3/31/2019
Price/Earnings and EV/EBITDA are calculated as weighted harmonic average and Dividend Yield as weighted average.
Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA).
Certain security valuations and forward estimates are based on Heartland Advisors’ calculations. Certain outliers may be excluded. Any forecasts may not prove to be true. Economic predictions are based on estimates and are subject to change.
All indices are unmanaged. It is not possible to invest directly in an index.
Past performance does not guarantee future returns.
Thank you for your continued confidence.