On October 04, 2023, ASML Holding NV (ASML, Financial) recorded a daily gain of 2.26%, marking a 3-month loss of -20.3%. Despite this downturn, the company boasts an impressive Earnings Per Share (EPS) (EPS) of 19.76. The question that arises is whether ASML Holding NV is significantly undervalued. This article aims to explore this query by delving into a comprehensive valuation analysis. So, read on for an enlightening journey into ASML Holding NV's valuation.
Introduction to ASML Holding NV
ASML Holding NV, founded in 1984 and headquartered in the Netherlands, is a leading player in the semiconductor industry, specializing in photolithography systems. Their innovative technology allows chipmakers to continually increase the number of transistors on the same silicon area, significantly contributing to the cost of cutting-edge chip production. ASML's products are integral to major semiconductor manufacturers, including Intel, Samsung, and TSMC.
The company's current stock price stands at $583.51, which will be compared with its GF Value, an estimation of fair value, to assess whether the company is undervalued or overvalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, an internal adjustment factor from GuruFocus considering the company's past growth and returns, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is overvalued and likely to yield poor future returns. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued and potentially offer higher future returns.
ASML Holding NV's stock, at its current price of $583.51 per share, appears to be significantly undervalued according to GuruFocus's valuation method. This implies that the long-term return of its stock is likely to be much higher than its business growth.
ASML Holding NV's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial health before purchasing its shares. ASML Holding NV has a cash-to-debt ratio of 1.41, ranking lower than 57.74% of 904 companies in the Semiconductors industry. Despite this, GuruFocus ranks ASML Holding NV's financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. ASML Holding NV has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.20 billion and Earnings Per Share (EPS) of $19.76. Its operating margin is 32.99%, which ranks better than 94.86% of 954 companies in the Semiconductors industry. Overall, the profitability of ASML Holding NV is ranked 10 out of 10, which indicates strong profitability.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth rate of ASML Holding NV is 23.8%, which ranks better than 74.71% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 32.3%, which ranks better than 62.24% of 776 companies in the Semiconductors industry.
Return on Invested Capital vs. Weighted Average Cost of Capital
A company's profitability can also be evaluated by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, ASML Holding NV's ROIC was 24.76 while its WACC came in at 12.86.
Conclusion
In summary, ASML Holding NV's stock shows every sign of being significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 62.24% of 776 companies in the Semiconductors industry. To learn more about ASML Holding NV stock, you can check out its 30-Year Financials here.
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