ASML Holding NV Stock Shows Every Sign Of Being Significantly Overvalued
- By GF Value
The stock of ASML Holding NV (NAS:ASML, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $683.3 per share and the market cap of $284.6 billion, ASML Holding NV stock shows every sign of being significantly overvalued. GF Value for ASML Holding NV is shown in the chart below.
Because ASML Holding NV is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 17.1% over the past three years and is estimated to grow 18.21% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. ASML Holding NV has a cash-to-debt ratio of 1.01, which ranks in the middle range of the companies in Semiconductors industry. Based on this, GuruFocus ranks ASML Holding NV's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of ASML Holding NV over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. ASML Holding NV has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $18.8 billion and earnings of $12.735 a share. Its operating margin is 32.61%, which ranks better than 95% of the companies in Semiconductors industry. Overall, the profitability of ASML Holding NV is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of ASML Holding NV over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of ASML Holding NV is 17.1%, which ranks better than 83% of the companies in Semiconductors industry. The 3-year average EBITDA growth rate is 17.9%, which ranks in the middle range of the companies in Semiconductors industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, ASML Holding NV's return on invested capital is 22.25, and its cost of capital is 7.33. The historical ROIC vs WACC comparison of ASML Holding NV is shown below:
To conclude, The stock of ASML Holding NV (NAS:ASML, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about ASML Holding NV stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
