Benjamin Graham Defensive Analysis
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. ASM has a Graham number of √(15 x €7,5 EPS x 1,5 x €43 Book Value) = €85
Dividend: €2,50/€449 = 0,5% and has increased over the years. Share buybacks should be linked to share price to be more effective.
SECTOR: [FAIL] ASM 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 ASM, 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. ASM's sales of €2 411 million, based on 2022 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. ASM's current ratio €1 672m/€780m of 2.1 passes this 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 do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for ASM is €221 million (zero loans (in the past)), while the net current assets are €892 million. ASM passes this test easily.
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. Companies with this type of growth tend to be financially secure and have proven themselves over time. ASM's earnings have increased by 350% over the past ten years.
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 is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. ASM's E/P of 3% (using this years adjusted Earnings of €9) fails this test.
SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ASM's sales of €2 411 million, based on 2022 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. ASM's current ratio €1 672m/€780m of 2.1 passes this 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 do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for ASM is €221 million (zero loans (in the past)), while the net current assets are €892 million. ASM passes this test easily.
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. Companies with this type of growth tend to be financially secure and have proven themselves over time. ASM's earnings have increased by 350% over the past ten years.
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 is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. ASM's E/P of 3% (using this years adjusted Earnings of €9) 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. ASM has a Graham number of √(15 x €7,5 EPS x 1,5 x €43 Book Value) = €85
Dividend: €2,50/€449 = 0,5% and has increased over the years. Share buybacks should be linked to share price to be more effective.
Conclusion: Oktober 2021 and August 2023 not for the Graham Defensive Investor.
During the dip to EUR 221 in 2022 (rough math Eur 15 EPS *15 multiple = EUR 225) it was obviously a better buy, like many other stocks that dipped at the same time.
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