ASML priced to perfection?
Famed investor Peter Lynch said: "In business, competition is never as healthy as total domination." He might have liked ASML.
For a few years, I have been following ASML and often thought the price was too high based on a linear chart comparing Price and Graham value. It seems like the difference is getting bigger and bigger.
For a few years, I have been following ASML and often thought the price was too high based on a linear chart comparing Price and Graham value. It seems like the difference is getting bigger and bigger.
Today, August 2023, the share price has fallen to EUR 604 from EUR 734 or 18% whilst revenues and earnings per share have increased.
The big chart is a Peter Lynch log. scale share price versus earnings per share.
An interesting thing I don't understand at ASML is how they manage share buybacks. It seems they spend the most when the share price is highest? https://www.asml.com/en/investors/why-invest-in-asml/share-buyback doesn't seem to be efficient capital allocation?
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 €21 173 million, based on 2022 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 €23 064m/€17 983m of 1.3 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 €9 506 million, while the net current assets are €5 081 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 3,2% 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 €18 EPS x €30 Book Value) = €110
Note: The more shares bought back at a price much higher than book value, the lower the book value per share becomes.
DIVIDEND 5,80/600 = 1 %
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