I am bullish on ASML Holding (ASML) as it enjoys strong growth momentum, a lengthy growth runway, reasonable valuation multiples relative to its history, and bullish sentiment from Wall Street analysts alongside an average price target that implies substantial upside potential over the next year.
ASML is a multinational company that specializes in the development and manufacturing of photolithography systems. ASML is the sole supplier of UEV photolithography machines around the globe and one of the largest suppliers in the semiconductor industry for photolithography systems.
The company was formed approximately 38 years ago in 1984 and has since expanded its business to serve various customers, clients, and partners on a global scale. Its intellectual property portfolio also includes imprint lithography, which adds to the substantial value of the company.
The machines used by Samsung Electronics and Taiwan Semiconductor Manufacturing for advanced chip manufacturing are mostly provided by ASML, giving it a near-monopoly in this respect.
Strengths
ASML has around 30,000 full-time employees globally. These employees are highly skilled and have polished expertise and technical know-how in their respective fields. In addition to the highly qualified workforce, the company also has a strong global footprint, with its clients spread across different continents and countries.
Its unique portfolio, early entry into the market, and global presence give it a competitive edge over some other major companies working in the industry. ASML’s strong financial performance and delivery backlogs are also expected to garner high hopes for the future, making it an attractive investment option for investors and partners.
Recent Results
According to the Q4 2021 report, ASML total net sales were around €5 billion (€18.6 billion for the entire fiscal year). The company recorded a gross margin of 54.2% in the fourth quarter and a 52.7% margin for Fiscal Year 2021.
Net income also experienced a massive increase, moving from €3.55 billion in 2020 to €5.9 billion in 2021. The proposed dividend per share was €5.50 per ordinary share – a 100% increase from the previous year – and the net income per share reached €4.39 in the quarter, taking the yearly total to €14.36.
Valuation Metrics
ASML stock looks attractively valued here as it trades below its three-year valuation multiple averages on a forward EV/EBITDA ratio and forward price-to-normalized-earnings ratio. Its forward EV/EBITDA ratio is 26.4 times compared to its historical average of 28 times, and its forward price-to-normalized-earnings ratio is 32.6 times compared to its historical average of 35.4 times.
Meanwhile, analysts expect revenue to increase 19.9% and normalized earnings per share to increase by 21.4% in 2022.
Wall Street’s Take
According to Wall Street analysts, ASML earns a Moderate Buy consensus rating based on two Buys and one Hold rating assigned in the past three months. Additionally, the average ASML price target of $870.67 puts the upside potential at 34.3%.
Summary and Conclusions
ASML stock is backed by strong growth momentum as an important player in the semiconductor industry and enjoys bullish sentiment from Wall Street analysts as well as an average price target that implies strong upside potential over the next year.
Meanwhile, the stock price looks reasonable here as the valuation multiples are slightly below recent historical averages.
While the business model has tended to be rather cyclical in the past, which means that it faces the risk of substantial downside, there are strong secular growth trends driving ASML’s business as we transition into the fourth industrial revolution. Given the relatively attractive valuation and the strong growth momentum, it looks like it might be a good time to add shares.
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