Offshore

⁠Dimitry Nakhla | Babylon Capital®
Two weeks ago, I suggested $ASML is a great consideration for investment at $753💵

Since then, shares of $ASML have rallied +12.72% ✅

As I explained in the conclusion of the analysis:

“As you can see, $ASML appears to have attractive return potential even if we assume greater or equal to 25x earnings (well below its 10-year mean & justified given its quality & growth rate)

However we should be aware that, while $ASML is a wide-moat business, we’ll be relying on fairly aggressive growth estimates in 2025 & these kinds of estimates should always be taken with caution

Today at $753💵 $ASML appears to be a great consideration for investment, although it will come with extreme volatility

Also, we have some margin of safety by relying on 25x (rather than 30x)”

#stocks #investing"

A sober valuation analysis on $ASML 🧘🏽‍♂️

•NTM P/E Ratio: 27.29x
•10-Year Mean: 31.11x

As you can see, $ASML appears to be trading below fair value

Going forward, investors can receive ~14% MORE in earnings per share 🧠***

Before we get into valuation, let’s take a look at why $ASML is an excellent business (*Financials in USD*)

BALANCE SHEET✅
•Cash & Short Term Inv: $5.38B
•Long-Term Debt: $4.94B

$ASML has a strong balance sheet & 34x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 17.5%
•2020: 21.6%
•2021: 43.8%
•2022: 48.0%
•2023: 48.7%
•LTM: 39.7%

RETURN ON EQUITY✅
•2019: 21.4%
•2020: 26.9%
•2021: 49.0%
•2022: 59.4%
•2023: 70.4%
•LTM: 48.6%

$ASML has excellent return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $7.22B
•2023: $30.42B
•CAGR: 15.46%

FREE CASH FLOW*
• $ASML FCF is very sporadic due to heavy capital expenditures & isn’t necessarily the most reliable way to analyze the company’s value

NORMALIZED EPS✅
•2013: $3.17
•2023: $21.65
•CAGR: 21.18%

SHARE BUYBACKS✅
•2018 Shares Outstanding: 424.90M
•LTM Shares Outstanding: 393.55M

By reducing its shares outstanding ~7.3%, $ASML increased its EPS by ~7.9% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 51.4%
•LTM Operating Margins: 30.7%
•LTM Net Income Margins: 26.5%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~14% MORE in EPS

Using Benjamin Graham’s 2G rule of thumb, $ASML has to grow earnings at a 13.65% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be more than the (13.65%) required growth rate:

2024E: $20.87 (-5.3% YoY) *FY Dec
2025E: $33.07 (58.5% YoY)
2026E: $38.61 (16.7% YoY)

$ASML has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $ASML ends 2026 with $38.61 in EPS & see its CAGR potential assuming different multiples

30x P/E: $1158.30💵 … ~21.0% CAGR

29x P/E: $1119.69💵 … ~19.3% CAGR

28x P/E: $1081.08💵 … ~17.6% CAGR

27x P/E: $1042.47💵 … ~15.8% CAGR

26x P/E: $1003.86💵 … ~14.0% CAGR

25x P/E: $965.25💵 … ~12.1% CAGR

As you can see, $ASML appears to have attractive return potential even if we assume greater or equal to 25x earnings (well below its 10-year mean & justified given its quality & growth rate)

However we should be aware that, while $ASML is a wide-moat business, we’ll be relying on fairly aggressive growth estimates in 2025 & these kinds of estimates should always be taken with caution

Today at $753💵 $ASML appears to be a great consideration for investment, although it will come with extreme volatility

Also, we have some margin of safety by relying on 25x (rather than 30x)

Given its volatility, however, it’s wise to piece into $ASML — this way, you enhance your margin of safety while also positioning yourself to “win-win” if the stock moves up or down in the s[...]

1 view14:27