ASML Peter Lynch Growth at A Reasonable Price analysis

Log scale

The price of ASML has increased from EUR 600 at the end of August last year to EUR 829,50 now an increase of 38%. 

Next year's earnings per share are expected to increase by 50% from EUR 20 to EUR 30 per share? 

Graham Analysis

SECTOR: [FAIL] ASML is in the Technology sector, which is one sector that this methodology avoids. Technology and financial stocks were considered too risky to invest in when this methodology was published. At that time they were not the driving force of the market as they are today. Although this methodology would avoid ASML, we will provide the rest of the analysis, as we feel times have changed.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ASML's sales of €27 560 million, based on 2023 sales, pass this test.

CURRENT RATIO: [PASS]  [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. ASML's current ratio €24 393m/€16 275m of 1.5 just fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS]  [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for ASML is €10 230 million, while the net current assets are €8 118 million. ASML fails this test.

LONG-TERM EPS GROWTH: [PASS]  Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for ASML grew by over 500% during the past 10 years. The company passes this criterion.

Earnings Yield: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states must be greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. ASML's E/P of 3% based on a guesstimate of EUR 25 EPS for next year fails this test.

Graham Number value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. ASML has a Graham number of √(15 x €22 EPS x 1,5 x €37 Book Value) = €135

Note: The more shares bought back at a price much higher than book value, the lower the book value per share becomes. 

DIVIDEND 6/829 = 1 %

Conclusion: Too difficult pile here. A possible buy under EUR 600

The lineair scale below should not be used, good growing companies always seem to expensive. Peter Lynch used a log scale like the graph above. (Both are showing the same data). 

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