Thursday, July 18, 2019

ASML Logarithmic chart of Graham Intrinsic Value and Price

Peter Lynch made charts, comparing stock Price over a number of years with the growth in (15 times) Earnings per share. An important aspect of his charts is that they were logarithmic, which puts a certain annual percentage of growth in a clearer perspective, it also shows that differences are different than they seem. Below you can see that the share was relatively much more expensive in 2007 than during the Price dip in 2016 to 75 Euros. Currently at EUR 197 the shares are 46% more expensive than at the end of December 2018 at EUR 135. 

This year I went back a little further to take a look at the price before 2003. The stock price was clearly bonkers in 2000, comparable to a price well over EUR 1 000,- today. The price subsequently dipped from above EUR 60 to under EUR 6.  Note: I don't have the financial results from 2000, so the Graham Value is an optimistic guess. 

In the long run, the company has earned a lot of money for its shareholders, growing revenue whilst maintaining high Returns on Equity and Capital Employed, that is the most important lesson. The extra earnings you can gain by profiting from Mr. Market's mood swings are less important.

Benjamin Graham Defensive 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 €10 944 million, based on 2018 sales, pass this test.

CURRENT RATIO: [PASS] 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 €9 895m/3 692m of 2.7 passes the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] 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 €3 132 million, while the net current assets are €6 203 million. ASML passes 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 300% 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% 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 €4,9 EPS x €27 Book Value) = €60

DIVIDEND 2,1/197 = 1%

Conclusion today: Not a stock for the Graham Defensive investor, but maybe a buy under EUR 150,- .

1 comment:

Paul Delphine said...
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