ASML Stockanalysis and Valuation

The Netherlands-based company ASML Holding N.V. is a manufacturer of chip-making equipment. Currently there is a global chip shortage, due to trends like BigData and AI which are fueling the growth for semiconductors. Whether ASML can benefit from the chip boom the way shovel manufacturers have benefited from the gold rush is discussed in this article.



Introduction According to their website "ASML is an innovation leader in the semiconductor industry. We provide chip makers with everything they need – hardware, software and services – to mass produce patterns on silicon through lithography." But what exactly is ASML doing now?

After all, according to investor legend Warren Buffet, you should only invest in something you understand, right? Here is a litte overview how chips are made and who is leading the market in the according segment:

Source: https://asia.nikkei.com/Business/Electronics/Japanese-companies-fight-for-share-of-EUV-chip-technology-sector


In the exposure equipment segment, a crucial part in manufacturing chips, ASML isn't just the market leader, their market share is almost 100%! And with Japanese companies focusing on other aspects of the manufacturing process, I'm pretty confident that this won't change anytime soon.


Business

ASML's 2020 revenue was composed as follows:

Sales per Business



Sales per region




Source: https://www.marketscreener.com/



Growth

The Growth metrics are looking promising:

5Y. Average Revenue Growth (YoY): 16,6%

5Y. Average EBITDA Growth (YoY): 15,4%

5Y. Average EBIT Growth (YoY): 16,2%

5Y. Average Diluted EPS Growth (YoY): 16,7%


Here are the past growth values and the future forecasts in one diagram:



Source: https://www.marketscreener.com/ and https://seekingalpha.com/


Dividend

Current Yield (12th February): 0,72%

Payout Ratio: 30%

5Y. Average Growth Rate: 22%

Dividend Growth for 6 Years

Average Dividend Yield last 10Y: 0,9%


Debt

For me to verify that the company isn’t taking too much debt, I like to see that the debt is smaller than 4 times EBIT. For ASML this means: DEBT < 4 x EBIT -1,37 Bn. EUR << 4,05 Bn. EUR


Their current cash and equivalents is bigger than the debt they are taking, which is something i love to see!



Valuation (Current price: 434 EUR)

The average Dividend Yield for the last 10 Years was around 0,9%. Given that, the fair price for ASML, only looking at the dividend would be around 285 EUR. But who is buying ASMl for it's dividend right?

On the Earnings side, we got an average PE of 27,4 the last 10 years. Right now, the stock is trading for a PE of around 50, which of course seems a bit expensive in context.


Are we now looking at the Earnings Estimates for the end of 2024 and also factor in the average PE of about 27,4 we get a Target Stock Price of around 516 EUR. Which would mean as much as a total return of approx. 5% (considering dividends).


CONCLUSION

5% p.a. isn't what I expect from my investments. But due to the bright future of the whole sector of chips and semiconductors I wouldn't sell any share, if I would own one. That's why ASML remains on my watch list and I rate it as a HOLD. For those who still want some exposure in ASML I suggest dollar-cost-averaging into it.



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